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Transcript of Cost Reduction Techniques-final
Table of Contents
Page No
Chapter 1 Introduction
Chapter 2 Research Methodology
21 Primary Objective
22 Hypothesis
23 Research Design
24 Scope of Study On Cost Reduction-Automobile
`25 Limitations
Chapter 3 Critical review of literature
31 Automobile Market Overview
32 Automobile Domestic Performance
33 Exports of Automobile from India
34 Review of Literature on Cost Reduction
Chapter 4 Industry Profile-Automobile
41 The Pre 1997 Automobile Market
42 The Protected Indian Domestic Automobile Sector
43 The Advent of the Auto Majors-India
44 The After Sales Service Scenario
45 Market Potential of Indian Automobile Segment
451 Vehicle Prices
452 Consumer Finance
453 Infrastructure
1
454 Product Availability
46 The Future-Indian Automobile
Chapter 5 Company Profile-Tata Motors
51 History amp Evolution
52 Area Of Business
53 Tata Motors ndashSuccessful Car Indica
Chapter 6 Cost Reduction techniques in
Tata Motorsrsquos Indica
61 Outsourcing Strategy
62 Vendor Development
63 Supply Chain
64 Leveraging The Supply Chain
65 Cost Cutting
66 Quality Management
67 Cost Reduction In Energy Consumption
671 Energy Conservation Commitment Policy and Set Up
672 Electrical Saving ndash ( Compressed Air)
673 Thermal saving amp Heat Recovery
674 Projects Implemented During 2004-2005
675 Energy Conservation Plans and Targets
2
Chapter 7 SWOT Analysis of Cost Reduction Techniques
in Automobile
Chapter 8 Recommendation
81 Main Indicators
82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
83 Investment Margin is Key to Survival
84 Focus on Adequacy of Equity Capital
Chapter 9 Bibliography
Chapter 10 References
Chapter 11 Annexures
3
Chapter 1 Introduction
This research work related to customer research study titled ldquoEffectiveness Of Cost Reduction Techniques In The
Automobile Sectorrdquo throws a bucket of ice water in the face of some core business management tenets mdash plus a
number of keystone principles of the marketing distribution channel advertising and customer relationship
management (CRM) industries
Freed from the editing and selective hearing businesses often invokes to avoid hearing unpleasant
truths customers dish out an earful to companies about what they want what they dont want and what they
ignore mdash and how they really make purchase decisions
Businesses need to rethink their logic and develop new operating models based on customer centric behaviors and
valuations
India has became manufacturing Hub for automobile and textile industries Where FDI Has been done in these
sectors So its task for Operational Managers to optimize Cost with respect to Capital employed This may helped
companies to gain maximum Profit with minimum effort So Competitive Pricing can be done by companies to
competitor with their competitors This Paper aims to study effective methods for Direct Cost reduction
techniques that currently being implemented by Automobile
The auto industry is another beehive of innovation why so many MNCs were setting up car plants in
Tamil Nadu Because the state produces an inexhaustible supply of engineers maybe 200000 per year Many
4
come from private engineering colleges of poor quality But even if half the graduates are sub-standard that still
leaves 100000 competent innovative technicians Multinational car companies originally came to India for the
potentially huge domestic market To cut costs they had to use local components which initially were of low
quality But soon the interaction between component manufacturers and MNCs led to not just quality
improvement but innovations that nobody had dreamed of earlier Today Indian auto component companies are
doing computer-aided design and computer-aided manufacturing constantly coming up with new designs that
reduce cost and increase efficiency This design-savviness has made India a global player ex-porting over $1
billion worth of components last year And car exports have shot up to over 100000 in 2003-04 In the bad old
days of the licence-permit raj companies had no incentive to do RampD Getting a foreign collaboration approval
ensured monopoly profits for years But the new competition brought in by economic liberalisation in the 1990s
made RampD is an essential tool to compete and survive Tatarsquos Indica car is a prime example Bajaj Auto once
depended on technical know-how from Kawasaki and TVS on Suzuki Today both two-wheeler companies rely
overwhel-mingly on in-house RampD this alo-ne will enable them to withstand the new challenge from Honda
Other miracle Asian economies like Korea and Taiwan used labour-intensive manufacturing as their launching
pad taking advantage of their low wages Later they moved up the value chain India missed the bus of labour-
intensive exports but has now caught the jet plane of brain-power exports This began in computer software It
then spread to design-intensive manufacturing And it is now sparking an RampD revolution
After booming years of 2002 and 2003 the sales growth is slowing down and the prices are falling
Competition is becoming fiercer Pressure on profit margins and falling market shares force many local producers
to move towards exports to foreign markets
Up to 2010 India is going to become the second biggest automotive market in the world Forecasters predict the
country will be the fourth-largest producer of vehicles in the world by 2008 and may be the third-largest producer
5
by 2010 Indian consumers are demanding high quality cars so prices must be cut and costs minimized (source
Ernst amp Young)
In 2005 India produced nearly five times as many motor vehicles as in the early 1990s With annual production
nearing six million vehicles it is on pace to overtake Germany as the third largest national vehicle producer and
would trail only the United States and Japan in total vehicle output
Among the studys key findings are
To Study Cost Reduction techniques practiced in Manufacturing Industries(Automobile)
(a) Study of Effective Cost Reduction techniques in Supply Channel of distribution Network
(b) Study of Effective Cost Reduction techniques in Procurement of Raw Materials
(c) Study of Effective Cost Reduction techniques in Operational Management
The presence of a growing gap between customer expectations and company behaviors which creates opportunity
for some companies and increasing risk to others At a high level a companys degree of customer focus was the
most important purchase decision factor for customers and by a very wide margin
In terms of specific company behaviors mdash delivering customer-relevant quality products as expected was the
most desired factor very closely and unexpectedly followed by companies empowering their employees
6
Chapter 2 RESEARCH METHODOLOGY
7
8
Chapter 2 Research Methodology
CHAPTER 21 Primary Objective
The founder of the Japan-based Kaizen Institute Masaaki Imai defined Kaizen in his book Kaizen - The Key to
Japans Competitive Success as Kaizen means continuous improvement in the personal life home life social
life and working life Automobile companies applied Kaizen for continuous improvement in their operations
When Kaizen is applied to the workplace it means continuous improvement for - managers and workers Thus
Kaizen involves everyone in an organization to make improvements without large capital investments It can be
seen as a culture of continuous sustained improvement focusing on eliminating waste in all systems and
processes The Kaizen strategy begins and ends with people With Kaizen an involved leadership guides people
continuously to improve their abilities to meet high quality expectations low cost and on-time delivery which in
turn helps the organization gain a competitive edge
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
- Jay Wetzel Vice President and General Manager GM Technical Center commenting on the benefits
derived from CADCAMCAE tools in 200
To Study Operations of Automobile Company(Tata Motors)
(a) Study of Effective Cost Reduction techniques in Supply Channel of distribution Network
9
(b) Study of Effective Cost Reduction techniques in Procurement of Raw Materials
(c) Study of Effective Cost Reduction techniques in Operational Management
According to the Council of Logistics Management Supply Chain Management ldquothe process of planning
implementing and controlling efficient and cost effective flow of materials in-process inventory finished goods
and related information from point-of-order to point-of-consumption for the purpose of conforming to customer
requirements as efficiently as possiblerdquo The automobile industry has undergone significant structural and other
changes in the last decade or so In view of the present globalisation implementation of lean production and the
development of modularisation have changed the relationships between automobile assemblers (OEMs) and their
suppliers especially those in the first tierStiff competition among manufacturers will result in more mergers or
acquisitions The challenges automobile manufacturers and suppliers face include improving quality meeting cost
reduction targets and developing time to market
CHAPTER 22 Hypothesis
Is Automobile companies are following certain guidelines for Operations or not
Hypo 1- Network Planning ndash This is one of the most important issues for SCM
Determination of production requirements and inventory levels at the vendorrsquos facility for each product and
development of transportation flows between these facilities to the warehouses in a best possible way to reduce
total production inventory and ransportation costs with fulfilment of service level requirements
10
Hypo 2- IT and Decision Support Systemndash
This is another important challenge for SCM Today SCM is driven by the scope and opportunities appearing due
to abundance of data and the savings which can be achieved through efficient analysis of these data What data
should be transferred with its significance and most importantly what infrastructure is required internally and
between its partners is very important
Hypo 3- Supply chain integration and strategic partnering ndash
In SCM information sharing and operational planning are crucial for successfully integrated supply chain
CHAPTER 23 RESEARCH DESIGN
The study was conducted on part of Business Expansion plan of Automobile industry to expand their
existing Business On this part Exploratory Survey was conducted to know about Operatational Strategies of
automobile companies
This Market research is EXPLORATORY RESEARCH DESIGN Arguments in favors of EXPLORATORY
RESEARCH DESIGN is-
-It tests the Hypothesis examines the relationship and comes to a conclusion It test Hypothesis whether -
Is Automobile Companies using Network Planning
Is Automobile Companies using IT and Decision Support system
Is Automobile Companies Using Supply Chain Integration And Strategic Partnering
Findings and analysis are used for Decision making on account of Surveyed Data
11
In This type of Exploratory Research design involves Collection of Information from Secondary Data
In this Automobile Survey The whole study is Secondary data based oriented
a Secondary Data from Internet on Manufacturing Industries
b Journals on Cost reduction Techniques on manufacturing Industries
c Scholarly articles for brief about indian manufacturing industries
d Books on Operational management
e Review Articles on Supply Chain-Upstream and Down stream
f Study for Opeartion Research Techniques- Transportation Techniques
CHAPTER 24 Scope of the Study
Among the studys key findings are
Indian automobile and auto components industry is on a roll and there is an immense scope for management
for enhancing the supply chain of the sector India has become a favourable destination for foreign companies
to establish their facilities and form alliances with domestic companies Low cost of manufacturing
and conducive government support have been the major drivers for foreign companies investing in India
Indiarsquos large young population higher GDP growth and most importantly per capita passenger car penetration
is low at 85 car per thousand population which creates great opportunity for industry players to offer
an affordable four-wheeler alternative to the two-wheeler customers According to Planning Commission of India
Indian automobile industry is expected to grow at CAGR of 15 over the next five years The Indian economy is
12
now gaining momentum in the world of free trade and liberal movements of goods and services between
countries Therefore efficiency in supply will be critical for Indiarsquos automobile success
NEED FOR MATERIALS-SYSTEMS APPROACH
Improved materials and materials processing can and must play a large role in generating productive and effective
responses to the forces that will drive the automotive industry in the future However these forces often pull in
diverse directions when specific technological actions are considered For example aluminum alloys can be used
to reduce vehicle weight thereby reducing emissions and improving fuel economy but the added materials costs
currently offset these advantages for many applications As a result steel is still the major material of choice for
automobile construction today and will be difficult to supplant for the foreseeable future
Indiarsquos process-engineering potential can be utilised for redesigning of manufacturing
processes to make them more labour intensive and less capital intensive which will enable the MNCrsquos to reduce
their overall costs substantially For instance de-automating of the production processes which are applied in
Western countriesrsquo factories can reduce the overall manufacturing cost of some components by up to 20
In case of product engineering India has emerged as a leading destination in the world
Indiarsquos strength is in its design which helps in reducing costs For instance redesign of the Maruti Altorsquos steering
system has cut down its weight by 15 India with its skilled engineers can design a product very fast which in
turn reduces its development cost and lead times For example an Indian supplier took six months to design a
steering system for an automaker It took more than four years to develop similar system with suppliers in the
other low-cost countries Several automobile manufacturers have already set up their auto component facilities in
India
13
CHAPTER 25 Limitations
For Automobile Study Primary Data varies wrt Secondary Data on account of theoretical practices in field then
practical theories
With increasing disposable incomes and ever-growing burden on the public modes of transport the Indian
passenger car industry is heading for a bright future provided car manufacturers offer a world class cars that give
value for money use novel marketing concepts to entice potential buyers and offer good after-sales service
Demand for passenger cars in FY2002 is projected at approximately 970755 units while production is expected
to reach 1210000 units The year is likely to witness a spurt in exports due to excess supply and liberalization of
export policy by the government
Some of the future strategies that need to be addressed while entering in to Indian small car market include the
redesign of the vehicle to suit the Indian road conditions and to develop aggressive marketing strategy to counter
the cost advantage enjoyed by dominant players like Maruti due to high capacity utilization With growing
number of two wheeler owners opting for used cars vehicles with higher resale value and excellent service
network are likely to account for a major market share in the near future Moreover the introduction of Euro III
and Euro IV norms in the near future is likely to increase the scrapping rates of cars
Exports are likely to increase in the near future with the entry of international car giants like Daewoo Hyundai
Honda Siel GM and Ford that intend to use India as a manufacturing production base
14
Chapter 3 CRITICAL REVIEW OF
LITERATURE
15
CHAPTER 3 CRITICAL REVIEW OF LITERATURE
A just released customer research study titled Customers Say What Companies Dont Want to Hear throws a
bucket of ice water in the face of some core business management tenets mdash plus a number of keystone principles
of the marketing advertising and customer relationship management (CRM) industries
Greenberg adds Customers Say What Companies Dont Want To Hear proves a mission-critical strategic point
Businesses need to rethink their logic and develop new operating models based on customer centric behaviors and
valuations
Commenting on the findings Paul Greenberg author of the industry best-seller CRM at the Speed of Light
Customer Strategies for the 21st Century says Lee and Mangen have verified and amplified with hard data
the growing perception that the new breed of customer is here to stay and businesses need to react mdash or risk their
very existence
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 While a top manager should be the ideal customer he
should also be the greatest critic of his companys products If the CEO compromises or is only looking at the
margins then even if he is successful the companys success will be short lived
- Ratan Tata the Chairman Tata Group
16
Chapter 31 Automobile Market Overview
The domestic automobile market has been growing at 142 per cent CAGR over the past 4 years (2000-01 to
2004-05) while the auto components market has been growing at 192 per cent CAGR (2000-01 to 2003-04) The
industry (OEMs and suppliers together) contributed nearly 4 per cent to the countryrsquos GDP in 2003-04 The
automotive sector also offers significant employment opportunities It employs 045 million people directly and
around 10 million people indirectly
The industryrsquos capabilities in design engineering and manufacturing have been recognised the world over and
most automotive majors are looking to increasingly source auto components from India
India is emerging as one of the most attractive automotive markets in the world and is poised to become a key
sourcing base for auto components The table below captures the highlights of the sector in India that illustrates
its growing significanceSee Annexure A amp B
Indian Automobile Industry
Largest three wheeler market in the world
2nd largest two wheeler market in the world
4th largest passenger vehicle market in Asia
4th largest tractor market in the world
5th largest commercial vehicle market in the world
17
Chapter 32 Automobiles - Domestic Performance
The production and domestic sales of the automobiles in India have been growing strongly While production
increased from 48 million units in 2000-1 to 85 million units in 2004-05 (a CAGR of over 15 per cent) domestic
sales during the same period have gone up from 46 million to 79 million units (CAGR 142 per cent) A positive
trend in the domestic market is that the growth has not been driven by one or two segments but is consistent
across all key segments Two wheelers which constitute the majority of the industry volume have been growing
at a rate of 143 per cent three wheelers at a rate of 14 per cent and passenger vehicles at a rate of 113 per cent
Commercial vehicles have been growing at a higher rate of nearly 235 per cent although from a lower base
Since nearly all macro-economic indicators ndash GDP infrastructure population demographics interest rates etc ndash
are showing a favourable trend the domestic market for automobiles in India is expected to continue on its
growth trajectory
Chapter 33 Exports of automobiles from India
While the domestic sales of automobiles have been increasing at a significant rate exports have taken a quantum
leap in recent years The exports of automobiles from India have been growing at a CAGR of 39 per cent for the
past four years Exports growth has been spearheaded by the passenger vehicle segment which has grown at a
rate of 574 per cent
As a result the share of passenger vehicles in overall vehicle exports has increased from 18 per cent in 1998-99 to
26 per cent in 2004-05 Europe is the biggest importer of cars from the country while predominantly African
nations import buses and trucks The Association of South East Asian Nations (ASEAN) region is
the prime destination for Indian two wheelers
18
Chapter 34 REVIEW OF THESIS DONE
This is easy to understand because the per capita disposable income of the people has gone up remarkably Over
the last five years per capita personal disposable income has gone up by around 8 which has increased
purchasing capacity of the people in the country Other factors have also contributed to this high growth in Indian
automobile sector These include lowering age of first car users shorter replacement cycles rising duel income
families nw technology which is lowering cost of ownership low car penetration in the country and most
importantly growing steel production in the country In addition wide variety and easily available financing
options are also some of the major reasons for surge in demand for automobiles in India
Global automobile manufacturers are consistently streamlining their business process by outsourcing their non-
core activities to low-cost countries like IndiaGlobal automobile manufacturers are under tremendous pressures
to innovate their manufacturing process and at the same time to reduce costs In view of the present global
competitiveness they must not only develop new features to strengthen their customer requirements but also
follow the environmental and safety standards In addition the base price of a car is expected to remain same over
the next decade As a result companies are forced to source more components from low-cost countries like India
According to Mckinsey global outsourcing of automobile and auto components would reach US$375 billion by
2015 from US$65 billion in 2002 India has plenty of scope to garner this potential According to the management
consulting firm India has the potential to notch this opportunity and reach up to US$25 billion to emerge as
major sourcing destinations along with China Mexico and Thailand Besides low cost Indias auto components
industry has the major advantage of enormous skills in process product and capital engineeringmdashits excellent
manufacturing history and good education system
19
Human beings think our way is the best but at Toyota we are told we have to always change We believe there is
no perfect way so we continue to search The goal is to break the current condition through Kaizen
- Shoichiro Toyoda Chairman Toyota Motor Corporation in December 2000
When Kaizen is applied to the workplace it means continuous improvement for - managers and workers Thus
Kaizen involves everyone in an organization to make improvements without large capital investments It can be
seen as a culture of continuous sustained improvement focusing on eliminating waste in all systems and
processes The Kaizen strategy begins and ends with people With Kaizen an involved leadership guides people
continuously to improve their abilities to meet high quality expectations low cost and on-time delivery which in
turn helps the organization gain a competitive edge
The production divisions council which checked the plants objectives occasionally modifying them taking into
account the companys profit targets replaced the production allowance councils After approval these objectives
became the Kaizen norm of each plant in terms of production efficiency The method of determining the
production efficiency was altered to make it less constrained as the standard time was fixed by measuring the time
really required for workers operations whereas earlier standard time was fixed on the basis of the best standard
time marked in the past
20
Chapter 4 Industry Profile
21
CHAPTER 4 Industry Profile
The Trans-nationals were also serious about developing vendors in India India is
bound to become an important destination for the global auto industry It took the financial turmoil in South East
Asia and the slowdown in the Chinese auto market to reinforce the targeting to Indian Market The new interest in
the small car segment also reflects certain amount of bullishness on the part of auto manufacturers about India
Despite projected over capacities--and current losses carmakers continued to queue
up their investments for small car segment To day there are 10 global auto majorsmdashincluding the $13-billion
Suzuki Motor (Japan) the $65-billion Daewoo (South Korea) the $147-billion Ford (US) the $47-billion Fiat
(Italy) and the $168-billion General Motors (US) operating in Indian Market
Chapter 41 The Pre 1997 Automobile Market
As late as 1997 the auto market in India was clearly segmented At the entry level
were MULs 800-cc car--priced between Rs 210-lakh and Rs 245 lakh--and the Omni at Rs 175 lakh At the
next level were the 993-cc Zen--priced at Rs 370 lakh--and the 999-cc Fiat Uno (Rs 362 lakh) Then came the
1300-cc Esteem models--priced between Rs 469 lakh and Rs 595 lakh--the 1498-cc Cielo (Rs 620 lakh) and
the 1598-cc Opel Astra (Rs 752 lakh) followed by premium cars like Mercedes-Benzs E-220 (Rs 22 lakh)
Changing Lanes
Two events have upset the equations in the price-segmented car market Daewoo has
Changed the lanes with the Cielo which is now priced at Rs 490 lakh and competes with the Zens top-end
model (Rs 440 lakh) and the Esteems lower-end version (Rs 469 lakh) Ceilo has created a new value segment
where the price is not proportionate to the size Daewoos strategic response has very clearly redefined
differentiation from price or size to value
22
Hyundai Motors India a subsidiary of the $27-billion Hyundai of South Korea launched
its 999-cc Santro at the Auto Expo 1998 in Delhi The model comes in five variants with the non-air-
conditioned manual transmission model priced at Rs 280 lakh and the semiautomatic air-conditioned GLS
model priced between Rs 315 lakh and Rs 4 lakh ClearlyHyundais strategy is aimed at taking on the market
leader Maruti Udyog Limited But by pricing the deluxe model at Rs 4 lakh it is also bridging the gap between
the small and the middle car segments At present Marutirsquos Esteem LX is priced Rs 70000 more than the
Santro GLS while the Cielo is priced Rs 90000 more
The further entry of new players will only blur the segments New entrants will be
involved in price war to find a foothold in the Indian market Few of the examples include
TELCOs positioning of its 1400-cc Indica car--launched in November 1998 and priced close to Marutirsquos 800-cc
model as a small carand Honda sneaking its 1300-cc City into the segment vacated by the Cielo although it is
an accepted fact that pricing or positioning cannot be done in isolation In a crowded market that must depend on
the available strategic opportunities
By creating new segments companies can broaden their market base increase
capacity utilization levels pre-empt competitors market entry moves and importantly lower costs While Maruti
did that by launching three versions of the Esteem TELCO accomplished it by using a common platform for the
Sumo the Estate and the Sierra models Hyundai is also planning to come to the market with five variants in near
future At high volumes costs can be lowered by more than 20 per cent across variants due to experience curve
effect
Configuring the sticker price for a car in the market today is no more a functional
decision It has become a strategic decision as it identifies the key segmentrsquos response
23
elasticity to the market offer The two key inhibiting factors for the poor response to the auto war fare in Indian
Car Market are basically the low per capita income at $350 (Rs 14000 at current prices) and the high
manufacturing costs A large part of the population expected to graduate from two wheelers to four wheelers has
not responded as they were supposed to during this period of time The domestic auto giant Maruti Udyog
limited still forces the new players to benchmark themselves against its products which roll out from a
depreciated yet high-volume plant It enjoys the fast mover as well as the cost advantage with the higher capacity
utilisation that helps him to cut costs across as more cars you make the cheaper they get
With the worldrsquos second largest and fastest-growing population there is no doubt that Indiarsquos potential in both
economic and population terms and the effect it will have on the auto industry in the next years During the last
two years export from this sector has grown significantly owing mainly to the export of cars and two-three-
wheelers
The industry is characterized by a very high percentage (75) of production in the 23 wheeler sector India ranks
as the largest manufacturer of motorcycles and second largest in manufacturing of scooters in the world India
today is also the second largest manufacturer of tractors as well The industry has intense forward and backward
integration
The Indian automotive industry had experienced an extraordinary growth due to the improvement in the living
standards of the middle class and an increase in their disposable incomes Moreover the liberalization steps such
as relaxation of the foreign exchange and equity regulations reduction of tariffs on imports and refining the
banking policies initiated by the Government of India have played an equally important role in bringing the
Indian Automotive industry to great heights
It is estimated that the sale of passenger cars have tripled compared to their sale in the last five years Thus the
sale of cars has reached a figure of 1 million users and is expected to increase further Its also to be noted that the
24
demand for luxurious models SUVs and mini-cars for family owners have shot up largely due to increase in the
consumers buying capacity
The Indian automotive market
India country fact file 2005
Population 1 080 264388
Per Capita GDP (PPP) $3400
GDP Growth Rate 71
Total automotive sales 2005 1 439604 (889333)
Total automotive production 2005 1 643460 (1 000567)
Market growth 2005 vs 2004 70 (64)
Best sold model PC segment 2004 Maruti Alto (168)
Best sold model LCV segment 2004 Maruti Omni (213)
(passenger cars) (market share in segment)
Source httpwwwsegmentycomIndiahtm
Chapter 42 The Protected Indian Domestic Automobile Sector
MUL which set up shop in 1984 had 10 long years of relative protection to emerge as a formidable competitor
with high volume and a strong brand image in the mind of Indian customers When the industry was deregulated
in 1993 the cost barrier had become so high that new companies could not dare to look at the small car segment
25
Instead they settled for the mid-size segment where both volumes and margins were expected to be high
However a shakeout in the Indian mid-size car segment the slowdown in international auto sales pushed
transnational auto majors into India which have now turned the tide against MULThe present generation small
cars launched recently are more contemporary in terms of both design and technology while Marutis small-car
technology is at least a decade old
Keeping the future growth potential of Indian market in mind the auto majors are prepared to bear losses for the
next 10 years This will help them to gain a good market share the long run and provide breathing space to
counter the strategic moves of the leader Hence the narrowing price differential between the old and the new
small cars is the first call of the auto majors against Maruti in Indian Market If Maruti has to try and match the
features of new generation small cars it would mean additional costs On the contrary if Maruti decides to
hold its price line and add new features it could translate into losses or at least low profits But MUL can still
bank on at least two Suzuki models the proposed 657-cc Cervo C and the current 996-cc Wagon R to battle its
rivals in the future
Chapter 43 The Advent of the Auto Majors
Besides bracing up for losses in the initial years auto majors like Hyundai and Daewoo are banking on exports
too At the moment export may look unattractive because of the South Asian meltdown but in the long run low
production costs and component-manufacturing skills will make India- made cars competitive at global market
place Hence they are looking India as a production base to cater to the growing Asian market by way of
outsourcing from Indian manufacturing base However many a hurdles they have to cross on the journey to
profitability
26
The investments necessary for a large plant are simply huge Daewoo has so far sunk Rs 2700 crore in a
120-lakh-unit-a-year plant Unlike China which has restricted the number of companies India has followed an
open door policy for car manufacturers which has resulted in emergence of fragmented markets with distributed
capacity
An Original Equipment Manufacturer (OEM) needs a minimum economic size of 150 lakh cars a year to attract
vendor interest Daewoo was able to slash the Cielos price as it is cheaper to import components because of the
devaluation of the South Asian currencies The auto majors are lobbying with the government to ease the strict
indigenisation norms in the new automobile policy so that they can import the components from other countries
This will help them to cut the prices and to go head on the market leader particularly in a price responsive market
like that of small car segment
The other argument is that with the given import duty of 103 per cent on Completely Knocked-Down Kits
(CKDs) which is the same as that on Completely Built-up Units (CBUs) and 68 per cent on components the
imports will become costlier and compel companies to localize their manufacture The exposure to currency
fluctuations which crippled the four Japanese light commercial vehicle projects in the late 1980s is also minimal
when a company localizes component manufacture
Besides lean manufacturing techniques like Just-In-Time (JIT) are possible only when the supplier is located
close to the manufacturing unit If Maruti is a success story it is only because it indigenised 85 per cent of its
components within five years of going on-stream
Then theres the question of servicing the replacement market for spares Customers typically expect
components to be available locally and at competitive prices Imports cannot guarantee that but it is a
27
tremendous job to localize components at the right quality and price given the supplier problems in prevalent in
India
An Original Equipment Manufacturerrsquos competitive advantage lies in its marketing skills Having achieved price
and technology parity it can easily woo the consumer with attractive financing schemes and superior after-sales
service Nudged by the competition most auto players have a clutch of schemes to offer Daewoo Motors India
provides interestfree car finance Ford Motor and General Motors have slashed interest rates MULs joint
venture finance company Maruti Countrywide is offering loans at 1350 per cent when the prevailing lending
rate is 17 per cent and above
Chapter 44 The After Sales Service Scenario
After sales service for cars is as critical as showroom deals Maruti services its 2 million customers through an
army of 174 dealers spread across the country It will be impossible for a company to duplicate such
infrastructure particularly with investments in a metro-based showroom going up to Rs 4 crore Margins in
retailing are moving from actual sales to after sales service
The problem of price war is evident with Auto majors as much as with dealers In a bid to woo the customers
dealers particularly in non-prime locations are cutting their margins It will not be surprising if single-brand
dealers eventually turn into multi-brand sellers in future
Doing so will benefit all the three constituents in the marketing chain the OEM the dealer and the buyer The
carmaker can expand his reach without expensive investment the dealer can increase his revenue and the
customer gets a variety of models and brands under one roof in future
The local partner will be the loser in this fierce battle Without the means to make either matching equity or
technological investment the Indian collaborator will be driven off the road
28
It has already happened to the Rs 166-crore DCM which tied up with Daewoo Motors and can happen to both
the Rs 1258-crore Hindustan Motors (Partner General Motors) and the Rs 360657 crore Mahindra amp Mahindra
(Partner Ford Motor)
So they are reconciled to adopting a minority role or becoming auto component vendors This list includes
Siddharth Shrirams Rs 430-crore Siel (Partner Honda) the Kirloskars (Partner Toyota) and the Munjals of the
Rs 2000-crore Hero Group (Partner BMW) And the evidence is compelling eg Hindusthan Motors has a
passive role in its joint venture with General Motors although the Opel Astra is manufactured at HMs Halol plant
in Gujarat The same can be forecasted about Mahindra and Mahindrarsquos joint venture with Ford Motor What can
prolong the life of the joint venture is distribution muscle as it will take at least five years for a transnational auto
major to build a strong distribution channel in this country
By all accounts the auto industry is headed for a glut With an estimated demand for cars to touch 9 lakhs in
2001-2002 the installed capacity will rise to 16 lakhs So the current growth rate in Indian market is not
sustainable There will be at least two years of stagnant or declining demand before the resumption of the growth
trendThere is a projected demand of 1-lakh cars in the mid-segment alone by 2001-2002 And the car numbers
will add up to around 6 lakh a year That will engender a shakeout which is already afoot in the other Asian
markets For instance poor off -take and a consequent build-up of car inventories has led to a fierce price-war in
China
Chapter 45 Market Potential of Indian Automobile Segment
The demand for the small car will continue to drive growth for the next five years Of the total sales of Maruti in
2000-2001around 85 per cent were small cars The Esteems sales dropped in the same period where as the small
cars drove MULs sales So demand for small cars will leap only if certain conditions are fulfilled
29
Rise in the Income Levels In the US auto demand rises by 4 per cent for every 1 per cent increase in the real
Gross Domestic Product but this is irrelevant for India as only the top 150 per cent of the population
can afford a car The demand can shoot up if the income levels of the top 5 per cent continue to rise in future
Level Of Motorization It is stagnant at 170 cars per 1000 people for decades However in the post-liberalization
period the motorization level has leaped to 370 cars per 1000 Although it is still lower than the levels in the
developed markets motorization is bound to rise further in the coming years
Chapter 451 Vehicle Prices
Falling imports and excise duties coupled with competition will continue to boost demand and
the prices are likely to fall further at least in the short run
Chapter 452 Consumer Finance
Over 60 per cent of customers opt for consumer finance That figure could go up if interest
rates continue to fall
Chapter 453 Infrastructure
Traffic congestion and bad roads could deter potential buyers from going for small cars
particularly in small cities of India The future is not very heartening in this aspect
Chapter 454 Product Availability
As manufacturers shift their attention to the small car more and more people will be able to
afford it and demand will only rise in the future period of time
30
Chapter 46 The Future-Indian Automobile
There is a sharp contrast in the buying behavior of Indian Consumer compared to their western counter parts yet
there is no doubt that Indian car market is going to increasingly resemble the latter In the West the industry is
likely to be dominated by three or four major players With a likely demand of 11 lakh cars by 2006 there will be
a few niche players like BMW Mercedes-Benz and Audi with luxury cars to offer Unless car manufacturers
have a large range of vehicle to offer they will be unable to subsidize their costlier models
The market will consolidate to few segments The carmaker has to make diverse models based on diverse and
flexible platforms Products like the stripped-down economy car the sports utility vehicle or the van should be
built on the same platform For the price-sensitive customers there can be a no-frills version a loaded version for
the middle customer and luxury car manufacturers can target the high-end customers
The fortunes of the autoobile industry will continue to hinge on the large price sensitive customers who will
graduate to the higher end of the market over a period of time
Until then the small car will continue to drive demand and most of the car-manufacturers are
gearing up for this eventuality
31
Chapter 5 Company Profile
ldquoTata Motorsrdquo
32
CHAPTER 5 Company ProfileTata Motors
Tata Motors previously known as Tata Engineering and Locomotive Co Ltd (TELCO) is one of the largest
companies in the Tata Group and one of Indias largest business houses Tata Motors is Indias leading
commercial vehicle manufacturer and the third largest passenger car manufacturer The company is the sixth
largest truck manufacturer in the world Tata Motors recently received the Balanced Scorecard Collaborative Hall
of Fame Award for having achieved a significant turnaround of its overall performance A comprehensive quality
improvement and cost cutting initiative in September 2000 has played an important role in the companys
turnaround from a loss of Rs 500 crores in the year ended March 2001 to a profit of Rs 28 crores in the first
quarter of 2002-2003
Tata Engineering and Locomotive Company (TELCO)
Chapter 51 History amp Evolution
Tata Engineering and Locomotive Company Ltd popularly known as Telco was incorporated in 1945 to
manufacture steam locomotives In 1954 the company diversified into automobile manufacturing through a
collaboration with Daimler-Benz for the manufacture of commercial vehicles By the time the collaboration ended
in 1969 Telco had not only become an independent producer of medium commercial vehicles (MCVs) with
negligible import contentbut had developed the capability of designing and developing such vehicles The
Company progressively widened its product range to cover heavy commercial vehicles (HCVs) and light
commercial vehicles (LCVs) implementing one expansion program after another
To sustain the unrelenting pace of its growth Telco added machining press and assembly
33
capacities set up its own forge and foundries and virtually created the countryrsquos automobile ancillary industry
The Company even developed facilities for designing and manufacturing state-of-the-art machine tools material
handling equipment dies and fixtures To accommodate the Companyrsquos growing activity base a large modern
complex was set up at Pune in western India and a new plant became operational at Lucknow in the north of the
country
To provide a business focus for the Companyrsquos main activity areas Telco has created twobusiness unitsrsquo -
Automobiles and Construction Equipment ndash both of which have notched up record-breaking results
Telco today has a domestic market share of 68 in the MCVHCV segment 64 in the LCV segment and 32
in the multi-utility segment Apart from commercial vehicles which range from 1 ton to 35 tons GVW Telcorsquos
automobile products also include passenger vehicles and an extraordinarily popular multi-utility vehicle All these
products have been developed inhouse by the Companyrsquos own RampD Center This Center is equipped with the
latest computeraided design hardware and software enabling the company to respond quickly to changing
customer needs both in India and abroad
Telco has been exporting its products since 1969 and currently exports about a tenth of its
output Export markets include the Middle East Africa and Southeast Asia as well as
developed countries in Europe like France UK and Spain It is intended that exports should account for 20 of
the automobiles sold by the Company
Telcorsquos second line of business Construction Equipment has also grown rapidly and the
Company currently commands a 61 share in the excavator market and 90 in the crawler cranes market in
India The hydraulically operated construction equipment made by the company is in collaboration with Hitachi
34
Construction Machinery Limited of Japan There are ambitious plans for widening the range of excavators made
by the company and for adding new lines of construction equipment A recent addition to the excavator range is
Backhoe Loader
Telco is one of Indias largest private sector companies With a turnover of Rs 6637 billion it is the countrys
leading commercial vehicle manufacturer and the worldrsquos sixth largest automobile company
The widely successful Tata Indica which is Euro 1 and 2 compliant is the countryrsquos first
indigenously designed developed and manufactured passenger car The company also
makes several other passengers vehicles including the Safari the Sumo the Sierra the Tata Estate and the
Tatamobile pick-up
The companyrsquos products have received wide acceptance not only in India but also in markets in the Middle East
Asia Africa and Europe
Chapter 52 Areas of business
The company manufactures medium heavy and light commercial vehicles multi-utility
vehicles and passenger cars It also makes general and special purpose machines for
automotive applications at its machine tool division These include NCCNC horizontal and inline machining
centers flexible manufacturing systems CNC cylindrical grinding machines and robots for welding cutting
painting and other applications
In 1999 the companyrsquos revenues from its four manufacturing plants at three locations in India were Rs 6637
billion ($15735 million) In 1998 they were Rs 7026 billion ($1893 million) (The average exchange rate in
1999 was Rs 4218 to one US dollar)
35
In the year ended 31 March 2000 the companyrsquos total exports were worth about Rs 50553 crore against about
Rs 60078 crore in the previous year
Locations
The companyrsquos manufacturing plants in India are at Jamshedpur in Bihar Pimpri and
Chinchwad near Pune in Maharashtra and Lucknow in Uttar Pradesh A fifth manufacturing facility is being set
up at Dharwad in Karnataka
Collaborations
The Company has technical tie-ups with
bull The Institute of Development in Automotive Engineering SPA Italy for assistance in
small car body design and styling
bull Nachi Fujikoshi Corporation Japan for robots for welding painting and other
automotive applications
bull Le Moteur Moderne France for the development of diesel and petrol engines for
passenger cars and
bull Robert Bausch GmbH Germany for application work on the engine management
system for 4 PL petrol engines
36
Chapter 53 Tata Motors ndashSuccessful Car Indica
TELCO launched Indica when the TATA group was in red Telco chairman Ratan Tata said that the 1400 cc car
Indica would drive the company out of the red
Tata while talking to reporters at the IETF 99 in a videoconference from Mumbai said that the overwhelming
response of over 125 lakh initial bookings for the Indica had come as a surprise It seems we touched the
national chord somewhere as people responded to the fact that this is the first Indian car said Tata Indica is not
the end of the road for Telco when it comes to passenger cars It is just the beginning as there are more to come
said Tata adding that the company was working on another mid-size car after Indica
Telco had to produce 60000 cars a year to break-even The group created two
organizations within Telco one dealing with commercial vehicles and the other with passenger cars The
company under took a major restructuring exercise whereby the passenger car and commercial vehicles divisions
would function as two separate business units Telco had a strategy to go for exports after addressing the initial
requirements of the domestic market
Awards and Recognition
In May 2000 Tata Engineering and Locomotive Company Ltd (Telco) won a national award for successful
indigenous technology used in the Indica car project The award titled National award for successful
commercialization of indigenous technology by an industrial concern for indigenous development and
commercialization of Tata Indica car was presented by the minister for human resource development science and
technology and ocean development
Dr Murli Manohar Joshi
37
In November 1999 Telco was awarded the Department of scientific and industrial research
national award for indigenous design of the Tata Indica It was the first company in India to implement stringent
emission norms well ahead of the mandate dates
Promotions
The Indica advertising made interest for the car go into overdrive The campaign revolved around the premise that
the Indica would not just meet peoples expectations it would exceed them Every advertisement has a story to
tell
Pre launch Campaign
The Indica campaign began in the right earnest in December 1998 It was advertised as the launch of a car that
will spell doom for the small cars It was directly aimed at Maruti 800 The ad line used in the first campaign was
ldquoCar makers will suddenly remember all the thing they forgot to give yourdquo This hinted that Indica would have
more features than any of the existing small cars Indica used the catch lines like ldquo More car per Carrdquo ldquoMore
dreams per carrdquo to suggest that Indica will be bigger in size to the existing small cars yet be in the small car
category It competes with the mid size cars on size and give them a run for their money with its cheaper price
tag
At the launch of the car TELCO claimed that the people would never have to suffer from a small car again and
that the n end of the year (1998) would be the end of the small cars
Launch Campaign
The launch campaign of Indica focussed on the many advantages that it offered over other cars in the same
segment It promised the customers more than the current offerings Its first advertisement carried the following
catch line ldquo50cc moped 100cc bike 800cc car Time you asked for morerdquo
38
It then concentrated its efforts on criticizing the negative aspects of Maruti 800 and highlighted how Indica has
removed those very defects and presented a very sophisticated and modern car to the Indian customer It even
pointed out that the shape of Maruti was very unconventional and that people would prefer the shape of Indica to
Maruti 800 The advertisement read ldquo Box shaped bubble shaped wedge shaped But then Gentlemen prefer
curvesrdquo
The launch campaign also focussed on the roomy interiors of Indica a feature not offered by Maruti at that point
of time Also the expertise of TATA in diesel engines and fuel efficiency of these were the highlight of the launch
campaign of Tata Indica
Post Launch Campaigns
While the Launch campaign focussed on the features of Indica the post launch advertisements focussed on the
superior after sales service and longer warranty periods offered by Indica
Telco was the first company to offer an 18-month warranty period on engine parts The most famous line used
during this campaign was ldquoWe could go on and on about service or give you the one word summary TATArdquo
While their main adversary was the Maruti 800 Telco felt that it could also tap the mid size segment using the
selling point of space given by Indica They carried a campaign which said ldquoForget small cars we even make big
cars feel smallrdquo
It then went on to highlight the fact that Indica was Euro II compliant even before it was legally binding upon car
manufacturers to do so It also highlighted the concrete wall safety test that Indica withstands and tried to
showcase the car as a safe and strong car
39
Chapter 6 COST REDUCTION TECHNIQUES
IN TATA MOTORSrsquoS INDICA
40
Chapter 6 Tata Indica - The Making Of The Small Car
with objective of minimizing costs
The research provides an understanding of the issues concerning the supply chain management system at
Telco in regard to its small car Indica It outlines how Telco built the supply chain for the car by leveraging its
existing competencies and how it transformed itself from an integrated truck manufacturer to an automobile
integrator and from a product-centric company to competence- centric company The case discusses various
components of the supply chain and emphasises how Telco orchestrated them with the objective of minimizing
costs
ldquoTelcorsquos 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 comerdquo
- Business India March 22 1999
In the early 1990s Telcorsquos Chairman Ratan Tata (Tata) was flirting with the idea of developing a small
car By mid-1994 a rudimentary design was in place In 1995 Telco announced that it planned to build a car
which would be priced close to the Maruti 800 shaped like the Zen and spacious as an Ambassador
Producing the new small car ndash Indica ndash represented a different kind of challenge for Telco Should Tata succeed he
would change the face of Telco As a truck-maker Telco was so integrated that it even made it own castings and
forgings As an automaker it would have to focus on the value chain that stretched between raw materials and after-sales
41
service as well as assembling the parts into the complete automobile
For its new venture Telco outsourced 80 of the components (1200 of its 1500-plus parts) from 200-odd vendors To
develop the Indica Telco had to combine the learnings from its predecessors with its own unique supply chain
management strategies to ensure a sustainable low-cost platform
By learning to build and manage a supply chain it would set the ground for leveraging the capabilities of the
automotive component-manufacturers who already operated in its target markets In other words Telco planned
to use its skills as an integrator--bringing together products and services from both upstream and downstream
operations and packaging them for the customer under a brand name in its new venture
Globally a car could be built in 48 months with an investment of US $ 3 billion (Rs 1275 billion) Indica was
built in 31 months on a budget of Rs 17 billion This seemed to have been possible by focussing on the supply
chain
Chapter 61 THE OUTSOURCING STRATEGY
For Telco outsourcing seemed to be one of the most difficult aspects of producing the Indica Unlike global
automobile majors Ford Motors or General Motors which had a global vendor-base that could be replicated on
a smaller scale in India Telco had to create a vendor-base from scratch Moreover it did not have the expertise
either to design a car or to build an engine for it
Against this background Telco had to take its primary lsquomake-or-buyrsquo decisions for the key inputs-design
engine and transmission Telco decided to shop globally for the best deals and use its own expertise to make
42
whatever modifications were needed
(Refer Table I for the components outsourced by Telco)
TABLE I
OUTSOURCING THE COMPONENTS
Components Supplier
5 door hatchback IDEA Italy
Engine Institut Francais du Petrol
France
Assembly Line Nissanrsquos Plant Australia
Presses Mercedes Benz
Pistons and Piston rings India Pistons
Electrical components and fuel injection
systems Lucas-TVS
Steering systems Rane TRW Steering Systems
Clutch facings and rear (drum) brake linings Sundaram Brake Linings (SBL)
Seating Systems Tata-Johnson Controls
Radiators Tata-Toyo
Rear view mirrors Tata-Ficosa
Front and rear bumper dash-board inside
trims Tata-Auto Plastics
Air conditioning kits Subros Ltd
Wind screens and windows Asahi Glass
Fuel lines Imperial Auto
Differential assemblies Sona Steering
43
Sheet metal items JBM Tools
Source Business Today March 22 1999 and December 7 1999
Telco turned to the Italian company IDEA for the product-design It bought the engine from the Institut
Francais du Petrol of France and applied its engineering skills to adapt the engine requirements The transmission
was developed in-house at its Engineering Research Centre (ERC) at Pune Of the Rs 25 billion it spent on
designing the Indica the major share went in buying design tools and training its engineers in new skills Telcorsquos
engineers traveled regularly to the sites of its technology suppliers to receive training before the actual delivery
of the machines
Telco also outsourced its assembly line from Nissanrsquos plant in Australia for just Rs 900 million Telco
transplanted it at its factory at Chikli near Pune which was newly set up for Indica A new assembly line of the
same proportions would have cost at least Rs 4 billion Again of the 3 presses for the Indica only 1 was new
acquired for Rs 900 million while the other 2 were bought second-hand from Mercedes-Benz and modified to
suit the Indica
Telcorsquos engineers and the ERC did the application engineering programming installation and commissioning to
save around 45 of the technology costs The tooling for the car too was supplied internally by Telcorsquos machine
tool division To manage the supply chain better Telco kept the number of suppliers for Indica to just 200 as
compared to about 1000 for trucks Most of the parts were supplied by Telcorsquos traditional suppliersmdash TVS Rane
Group and Tata Auto Component Systems (Taco) who were single source suppliers Pressed parts assemblies
and drive shafts were sourced from single vendors
44
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
454 Product Availability
46 The Future-Indian Automobile
Chapter 5 Company Profile-Tata Motors
51 History amp Evolution
52 Area Of Business
53 Tata Motors ndashSuccessful Car Indica
Chapter 6 Cost Reduction techniques in
Tata Motorsrsquos Indica
61 Outsourcing Strategy
62 Vendor Development
63 Supply Chain
64 Leveraging The Supply Chain
65 Cost Cutting
66 Quality Management
67 Cost Reduction In Energy Consumption
671 Energy Conservation Commitment Policy and Set Up
672 Electrical Saving ndash ( Compressed Air)
673 Thermal saving amp Heat Recovery
674 Projects Implemented During 2004-2005
675 Energy Conservation Plans and Targets
2
Chapter 7 SWOT Analysis of Cost Reduction Techniques
in Automobile
Chapter 8 Recommendation
81 Main Indicators
82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
83 Investment Margin is Key to Survival
84 Focus on Adequacy of Equity Capital
Chapter 9 Bibliography
Chapter 10 References
Chapter 11 Annexures
3
Chapter 1 Introduction
This research work related to customer research study titled ldquoEffectiveness Of Cost Reduction Techniques In The
Automobile Sectorrdquo throws a bucket of ice water in the face of some core business management tenets mdash plus a
number of keystone principles of the marketing distribution channel advertising and customer relationship
management (CRM) industries
Freed from the editing and selective hearing businesses often invokes to avoid hearing unpleasant
truths customers dish out an earful to companies about what they want what they dont want and what they
ignore mdash and how they really make purchase decisions
Businesses need to rethink their logic and develop new operating models based on customer centric behaviors and
valuations
India has became manufacturing Hub for automobile and textile industries Where FDI Has been done in these
sectors So its task for Operational Managers to optimize Cost with respect to Capital employed This may helped
companies to gain maximum Profit with minimum effort So Competitive Pricing can be done by companies to
competitor with their competitors This Paper aims to study effective methods for Direct Cost reduction
techniques that currently being implemented by Automobile
The auto industry is another beehive of innovation why so many MNCs were setting up car plants in
Tamil Nadu Because the state produces an inexhaustible supply of engineers maybe 200000 per year Many
4
come from private engineering colleges of poor quality But even if half the graduates are sub-standard that still
leaves 100000 competent innovative technicians Multinational car companies originally came to India for the
potentially huge domestic market To cut costs they had to use local components which initially were of low
quality But soon the interaction between component manufacturers and MNCs led to not just quality
improvement but innovations that nobody had dreamed of earlier Today Indian auto component companies are
doing computer-aided design and computer-aided manufacturing constantly coming up with new designs that
reduce cost and increase efficiency This design-savviness has made India a global player ex-porting over $1
billion worth of components last year And car exports have shot up to over 100000 in 2003-04 In the bad old
days of the licence-permit raj companies had no incentive to do RampD Getting a foreign collaboration approval
ensured monopoly profits for years But the new competition brought in by economic liberalisation in the 1990s
made RampD is an essential tool to compete and survive Tatarsquos Indica car is a prime example Bajaj Auto once
depended on technical know-how from Kawasaki and TVS on Suzuki Today both two-wheeler companies rely
overwhel-mingly on in-house RampD this alo-ne will enable them to withstand the new challenge from Honda
Other miracle Asian economies like Korea and Taiwan used labour-intensive manufacturing as their launching
pad taking advantage of their low wages Later they moved up the value chain India missed the bus of labour-
intensive exports but has now caught the jet plane of brain-power exports This began in computer software It
then spread to design-intensive manufacturing And it is now sparking an RampD revolution
After booming years of 2002 and 2003 the sales growth is slowing down and the prices are falling
Competition is becoming fiercer Pressure on profit margins and falling market shares force many local producers
to move towards exports to foreign markets
Up to 2010 India is going to become the second biggest automotive market in the world Forecasters predict the
country will be the fourth-largest producer of vehicles in the world by 2008 and may be the third-largest producer
5
by 2010 Indian consumers are demanding high quality cars so prices must be cut and costs minimized (source
Ernst amp Young)
In 2005 India produced nearly five times as many motor vehicles as in the early 1990s With annual production
nearing six million vehicles it is on pace to overtake Germany as the third largest national vehicle producer and
would trail only the United States and Japan in total vehicle output
Among the studys key findings are
To Study Cost Reduction techniques practiced in Manufacturing Industries(Automobile)
(a) Study of Effective Cost Reduction techniques in Supply Channel of distribution Network
(b) Study of Effective Cost Reduction techniques in Procurement of Raw Materials
(c) Study of Effective Cost Reduction techniques in Operational Management
The presence of a growing gap between customer expectations and company behaviors which creates opportunity
for some companies and increasing risk to others At a high level a companys degree of customer focus was the
most important purchase decision factor for customers and by a very wide margin
In terms of specific company behaviors mdash delivering customer-relevant quality products as expected was the
most desired factor very closely and unexpectedly followed by companies empowering their employees
6
Chapter 2 RESEARCH METHODOLOGY
7
8
Chapter 2 Research Methodology
CHAPTER 21 Primary Objective
The founder of the Japan-based Kaizen Institute Masaaki Imai defined Kaizen in his book Kaizen - The Key to
Japans Competitive Success as Kaizen means continuous improvement in the personal life home life social
life and working life Automobile companies applied Kaizen for continuous improvement in their operations
When Kaizen is applied to the workplace it means continuous improvement for - managers and workers Thus
Kaizen involves everyone in an organization to make improvements without large capital investments It can be
seen as a culture of continuous sustained improvement focusing on eliminating waste in all systems and
processes The Kaizen strategy begins and ends with people With Kaizen an involved leadership guides people
continuously to improve their abilities to meet high quality expectations low cost and on-time delivery which in
turn helps the organization gain a competitive edge
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
- Jay Wetzel Vice President and General Manager GM Technical Center commenting on the benefits
derived from CADCAMCAE tools in 200
To Study Operations of Automobile Company(Tata Motors)
(a) Study of Effective Cost Reduction techniques in Supply Channel of distribution Network
9
(b) Study of Effective Cost Reduction techniques in Procurement of Raw Materials
(c) Study of Effective Cost Reduction techniques in Operational Management
According to the Council of Logistics Management Supply Chain Management ldquothe process of planning
implementing and controlling efficient and cost effective flow of materials in-process inventory finished goods
and related information from point-of-order to point-of-consumption for the purpose of conforming to customer
requirements as efficiently as possiblerdquo The automobile industry has undergone significant structural and other
changes in the last decade or so In view of the present globalisation implementation of lean production and the
development of modularisation have changed the relationships between automobile assemblers (OEMs) and their
suppliers especially those in the first tierStiff competition among manufacturers will result in more mergers or
acquisitions The challenges automobile manufacturers and suppliers face include improving quality meeting cost
reduction targets and developing time to market
CHAPTER 22 Hypothesis
Is Automobile companies are following certain guidelines for Operations or not
Hypo 1- Network Planning ndash This is one of the most important issues for SCM
Determination of production requirements and inventory levels at the vendorrsquos facility for each product and
development of transportation flows between these facilities to the warehouses in a best possible way to reduce
total production inventory and ransportation costs with fulfilment of service level requirements
10
Hypo 2- IT and Decision Support Systemndash
This is another important challenge for SCM Today SCM is driven by the scope and opportunities appearing due
to abundance of data and the savings which can be achieved through efficient analysis of these data What data
should be transferred with its significance and most importantly what infrastructure is required internally and
between its partners is very important
Hypo 3- Supply chain integration and strategic partnering ndash
In SCM information sharing and operational planning are crucial for successfully integrated supply chain
CHAPTER 23 RESEARCH DESIGN
The study was conducted on part of Business Expansion plan of Automobile industry to expand their
existing Business On this part Exploratory Survey was conducted to know about Operatational Strategies of
automobile companies
This Market research is EXPLORATORY RESEARCH DESIGN Arguments in favors of EXPLORATORY
RESEARCH DESIGN is-
-It tests the Hypothesis examines the relationship and comes to a conclusion It test Hypothesis whether -
Is Automobile Companies using Network Planning
Is Automobile Companies using IT and Decision Support system
Is Automobile Companies Using Supply Chain Integration And Strategic Partnering
Findings and analysis are used for Decision making on account of Surveyed Data
11
In This type of Exploratory Research design involves Collection of Information from Secondary Data
In this Automobile Survey The whole study is Secondary data based oriented
a Secondary Data from Internet on Manufacturing Industries
b Journals on Cost reduction Techniques on manufacturing Industries
c Scholarly articles for brief about indian manufacturing industries
d Books on Operational management
e Review Articles on Supply Chain-Upstream and Down stream
f Study for Opeartion Research Techniques- Transportation Techniques
CHAPTER 24 Scope of the Study
Among the studys key findings are
Indian automobile and auto components industry is on a roll and there is an immense scope for management
for enhancing the supply chain of the sector India has become a favourable destination for foreign companies
to establish their facilities and form alliances with domestic companies Low cost of manufacturing
and conducive government support have been the major drivers for foreign companies investing in India
Indiarsquos large young population higher GDP growth and most importantly per capita passenger car penetration
is low at 85 car per thousand population which creates great opportunity for industry players to offer
an affordable four-wheeler alternative to the two-wheeler customers According to Planning Commission of India
Indian automobile industry is expected to grow at CAGR of 15 over the next five years The Indian economy is
12
now gaining momentum in the world of free trade and liberal movements of goods and services between
countries Therefore efficiency in supply will be critical for Indiarsquos automobile success
NEED FOR MATERIALS-SYSTEMS APPROACH
Improved materials and materials processing can and must play a large role in generating productive and effective
responses to the forces that will drive the automotive industry in the future However these forces often pull in
diverse directions when specific technological actions are considered For example aluminum alloys can be used
to reduce vehicle weight thereby reducing emissions and improving fuel economy but the added materials costs
currently offset these advantages for many applications As a result steel is still the major material of choice for
automobile construction today and will be difficult to supplant for the foreseeable future
Indiarsquos process-engineering potential can be utilised for redesigning of manufacturing
processes to make them more labour intensive and less capital intensive which will enable the MNCrsquos to reduce
their overall costs substantially For instance de-automating of the production processes which are applied in
Western countriesrsquo factories can reduce the overall manufacturing cost of some components by up to 20
In case of product engineering India has emerged as a leading destination in the world
Indiarsquos strength is in its design which helps in reducing costs For instance redesign of the Maruti Altorsquos steering
system has cut down its weight by 15 India with its skilled engineers can design a product very fast which in
turn reduces its development cost and lead times For example an Indian supplier took six months to design a
steering system for an automaker It took more than four years to develop similar system with suppliers in the
other low-cost countries Several automobile manufacturers have already set up their auto component facilities in
India
13
CHAPTER 25 Limitations
For Automobile Study Primary Data varies wrt Secondary Data on account of theoretical practices in field then
practical theories
With increasing disposable incomes and ever-growing burden on the public modes of transport the Indian
passenger car industry is heading for a bright future provided car manufacturers offer a world class cars that give
value for money use novel marketing concepts to entice potential buyers and offer good after-sales service
Demand for passenger cars in FY2002 is projected at approximately 970755 units while production is expected
to reach 1210000 units The year is likely to witness a spurt in exports due to excess supply and liberalization of
export policy by the government
Some of the future strategies that need to be addressed while entering in to Indian small car market include the
redesign of the vehicle to suit the Indian road conditions and to develop aggressive marketing strategy to counter
the cost advantage enjoyed by dominant players like Maruti due to high capacity utilization With growing
number of two wheeler owners opting for used cars vehicles with higher resale value and excellent service
network are likely to account for a major market share in the near future Moreover the introduction of Euro III
and Euro IV norms in the near future is likely to increase the scrapping rates of cars
Exports are likely to increase in the near future with the entry of international car giants like Daewoo Hyundai
Honda Siel GM and Ford that intend to use India as a manufacturing production base
14
Chapter 3 CRITICAL REVIEW OF
LITERATURE
15
CHAPTER 3 CRITICAL REVIEW OF LITERATURE
A just released customer research study titled Customers Say What Companies Dont Want to Hear throws a
bucket of ice water in the face of some core business management tenets mdash plus a number of keystone principles
of the marketing advertising and customer relationship management (CRM) industries
Greenberg adds Customers Say What Companies Dont Want To Hear proves a mission-critical strategic point
Businesses need to rethink their logic and develop new operating models based on customer centric behaviors and
valuations
Commenting on the findings Paul Greenberg author of the industry best-seller CRM at the Speed of Light
Customer Strategies for the 21st Century says Lee and Mangen have verified and amplified with hard data
the growing perception that the new breed of customer is here to stay and businesses need to react mdash or risk their
very existence
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 While a top manager should be the ideal customer he
should also be the greatest critic of his companys products If the CEO compromises or is only looking at the
margins then even if he is successful the companys success will be short lived
- Ratan Tata the Chairman Tata Group
16
Chapter 31 Automobile Market Overview
The domestic automobile market has been growing at 142 per cent CAGR over the past 4 years (2000-01 to
2004-05) while the auto components market has been growing at 192 per cent CAGR (2000-01 to 2003-04) The
industry (OEMs and suppliers together) contributed nearly 4 per cent to the countryrsquos GDP in 2003-04 The
automotive sector also offers significant employment opportunities It employs 045 million people directly and
around 10 million people indirectly
The industryrsquos capabilities in design engineering and manufacturing have been recognised the world over and
most automotive majors are looking to increasingly source auto components from India
India is emerging as one of the most attractive automotive markets in the world and is poised to become a key
sourcing base for auto components The table below captures the highlights of the sector in India that illustrates
its growing significanceSee Annexure A amp B
Indian Automobile Industry
Largest three wheeler market in the world
2nd largest two wheeler market in the world
4th largest passenger vehicle market in Asia
4th largest tractor market in the world
5th largest commercial vehicle market in the world
17
Chapter 32 Automobiles - Domestic Performance
The production and domestic sales of the automobiles in India have been growing strongly While production
increased from 48 million units in 2000-1 to 85 million units in 2004-05 (a CAGR of over 15 per cent) domestic
sales during the same period have gone up from 46 million to 79 million units (CAGR 142 per cent) A positive
trend in the domestic market is that the growth has not been driven by one or two segments but is consistent
across all key segments Two wheelers which constitute the majority of the industry volume have been growing
at a rate of 143 per cent three wheelers at a rate of 14 per cent and passenger vehicles at a rate of 113 per cent
Commercial vehicles have been growing at a higher rate of nearly 235 per cent although from a lower base
Since nearly all macro-economic indicators ndash GDP infrastructure population demographics interest rates etc ndash
are showing a favourable trend the domestic market for automobiles in India is expected to continue on its
growth trajectory
Chapter 33 Exports of automobiles from India
While the domestic sales of automobiles have been increasing at a significant rate exports have taken a quantum
leap in recent years The exports of automobiles from India have been growing at a CAGR of 39 per cent for the
past four years Exports growth has been spearheaded by the passenger vehicle segment which has grown at a
rate of 574 per cent
As a result the share of passenger vehicles in overall vehicle exports has increased from 18 per cent in 1998-99 to
26 per cent in 2004-05 Europe is the biggest importer of cars from the country while predominantly African
nations import buses and trucks The Association of South East Asian Nations (ASEAN) region is
the prime destination for Indian two wheelers
18
Chapter 34 REVIEW OF THESIS DONE
This is easy to understand because the per capita disposable income of the people has gone up remarkably Over
the last five years per capita personal disposable income has gone up by around 8 which has increased
purchasing capacity of the people in the country Other factors have also contributed to this high growth in Indian
automobile sector These include lowering age of first car users shorter replacement cycles rising duel income
families nw technology which is lowering cost of ownership low car penetration in the country and most
importantly growing steel production in the country In addition wide variety and easily available financing
options are also some of the major reasons for surge in demand for automobiles in India
Global automobile manufacturers are consistently streamlining their business process by outsourcing their non-
core activities to low-cost countries like IndiaGlobal automobile manufacturers are under tremendous pressures
to innovate their manufacturing process and at the same time to reduce costs In view of the present global
competitiveness they must not only develop new features to strengthen their customer requirements but also
follow the environmental and safety standards In addition the base price of a car is expected to remain same over
the next decade As a result companies are forced to source more components from low-cost countries like India
According to Mckinsey global outsourcing of automobile and auto components would reach US$375 billion by
2015 from US$65 billion in 2002 India has plenty of scope to garner this potential According to the management
consulting firm India has the potential to notch this opportunity and reach up to US$25 billion to emerge as
major sourcing destinations along with China Mexico and Thailand Besides low cost Indias auto components
industry has the major advantage of enormous skills in process product and capital engineeringmdashits excellent
manufacturing history and good education system
19
Human beings think our way is the best but at Toyota we are told we have to always change We believe there is
no perfect way so we continue to search The goal is to break the current condition through Kaizen
- Shoichiro Toyoda Chairman Toyota Motor Corporation in December 2000
When Kaizen is applied to the workplace it means continuous improvement for - managers and workers Thus
Kaizen involves everyone in an organization to make improvements without large capital investments It can be
seen as a culture of continuous sustained improvement focusing on eliminating waste in all systems and
processes The Kaizen strategy begins and ends with people With Kaizen an involved leadership guides people
continuously to improve their abilities to meet high quality expectations low cost and on-time delivery which in
turn helps the organization gain a competitive edge
The production divisions council which checked the plants objectives occasionally modifying them taking into
account the companys profit targets replaced the production allowance councils After approval these objectives
became the Kaizen norm of each plant in terms of production efficiency The method of determining the
production efficiency was altered to make it less constrained as the standard time was fixed by measuring the time
really required for workers operations whereas earlier standard time was fixed on the basis of the best standard
time marked in the past
20
Chapter 4 Industry Profile
21
CHAPTER 4 Industry Profile
The Trans-nationals were also serious about developing vendors in India India is
bound to become an important destination for the global auto industry It took the financial turmoil in South East
Asia and the slowdown in the Chinese auto market to reinforce the targeting to Indian Market The new interest in
the small car segment also reflects certain amount of bullishness on the part of auto manufacturers about India
Despite projected over capacities--and current losses carmakers continued to queue
up their investments for small car segment To day there are 10 global auto majorsmdashincluding the $13-billion
Suzuki Motor (Japan) the $65-billion Daewoo (South Korea) the $147-billion Ford (US) the $47-billion Fiat
(Italy) and the $168-billion General Motors (US) operating in Indian Market
Chapter 41 The Pre 1997 Automobile Market
As late as 1997 the auto market in India was clearly segmented At the entry level
were MULs 800-cc car--priced between Rs 210-lakh and Rs 245 lakh--and the Omni at Rs 175 lakh At the
next level were the 993-cc Zen--priced at Rs 370 lakh--and the 999-cc Fiat Uno (Rs 362 lakh) Then came the
1300-cc Esteem models--priced between Rs 469 lakh and Rs 595 lakh--the 1498-cc Cielo (Rs 620 lakh) and
the 1598-cc Opel Astra (Rs 752 lakh) followed by premium cars like Mercedes-Benzs E-220 (Rs 22 lakh)
Changing Lanes
Two events have upset the equations in the price-segmented car market Daewoo has
Changed the lanes with the Cielo which is now priced at Rs 490 lakh and competes with the Zens top-end
model (Rs 440 lakh) and the Esteems lower-end version (Rs 469 lakh) Ceilo has created a new value segment
where the price is not proportionate to the size Daewoos strategic response has very clearly redefined
differentiation from price or size to value
22
Hyundai Motors India a subsidiary of the $27-billion Hyundai of South Korea launched
its 999-cc Santro at the Auto Expo 1998 in Delhi The model comes in five variants with the non-air-
conditioned manual transmission model priced at Rs 280 lakh and the semiautomatic air-conditioned GLS
model priced between Rs 315 lakh and Rs 4 lakh ClearlyHyundais strategy is aimed at taking on the market
leader Maruti Udyog Limited But by pricing the deluxe model at Rs 4 lakh it is also bridging the gap between
the small and the middle car segments At present Marutirsquos Esteem LX is priced Rs 70000 more than the
Santro GLS while the Cielo is priced Rs 90000 more
The further entry of new players will only blur the segments New entrants will be
involved in price war to find a foothold in the Indian market Few of the examples include
TELCOs positioning of its 1400-cc Indica car--launched in November 1998 and priced close to Marutirsquos 800-cc
model as a small carand Honda sneaking its 1300-cc City into the segment vacated by the Cielo although it is
an accepted fact that pricing or positioning cannot be done in isolation In a crowded market that must depend on
the available strategic opportunities
By creating new segments companies can broaden their market base increase
capacity utilization levels pre-empt competitors market entry moves and importantly lower costs While Maruti
did that by launching three versions of the Esteem TELCO accomplished it by using a common platform for the
Sumo the Estate and the Sierra models Hyundai is also planning to come to the market with five variants in near
future At high volumes costs can be lowered by more than 20 per cent across variants due to experience curve
effect
Configuring the sticker price for a car in the market today is no more a functional
decision It has become a strategic decision as it identifies the key segmentrsquos response
23
elasticity to the market offer The two key inhibiting factors for the poor response to the auto war fare in Indian
Car Market are basically the low per capita income at $350 (Rs 14000 at current prices) and the high
manufacturing costs A large part of the population expected to graduate from two wheelers to four wheelers has
not responded as they were supposed to during this period of time The domestic auto giant Maruti Udyog
limited still forces the new players to benchmark themselves against its products which roll out from a
depreciated yet high-volume plant It enjoys the fast mover as well as the cost advantage with the higher capacity
utilisation that helps him to cut costs across as more cars you make the cheaper they get
With the worldrsquos second largest and fastest-growing population there is no doubt that Indiarsquos potential in both
economic and population terms and the effect it will have on the auto industry in the next years During the last
two years export from this sector has grown significantly owing mainly to the export of cars and two-three-
wheelers
The industry is characterized by a very high percentage (75) of production in the 23 wheeler sector India ranks
as the largest manufacturer of motorcycles and second largest in manufacturing of scooters in the world India
today is also the second largest manufacturer of tractors as well The industry has intense forward and backward
integration
The Indian automotive industry had experienced an extraordinary growth due to the improvement in the living
standards of the middle class and an increase in their disposable incomes Moreover the liberalization steps such
as relaxation of the foreign exchange and equity regulations reduction of tariffs on imports and refining the
banking policies initiated by the Government of India have played an equally important role in bringing the
Indian Automotive industry to great heights
It is estimated that the sale of passenger cars have tripled compared to their sale in the last five years Thus the
sale of cars has reached a figure of 1 million users and is expected to increase further Its also to be noted that the
24
demand for luxurious models SUVs and mini-cars for family owners have shot up largely due to increase in the
consumers buying capacity
The Indian automotive market
India country fact file 2005
Population 1 080 264388
Per Capita GDP (PPP) $3400
GDP Growth Rate 71
Total automotive sales 2005 1 439604 (889333)
Total automotive production 2005 1 643460 (1 000567)
Market growth 2005 vs 2004 70 (64)
Best sold model PC segment 2004 Maruti Alto (168)
Best sold model LCV segment 2004 Maruti Omni (213)
(passenger cars) (market share in segment)
Source httpwwwsegmentycomIndiahtm
Chapter 42 The Protected Indian Domestic Automobile Sector
MUL which set up shop in 1984 had 10 long years of relative protection to emerge as a formidable competitor
with high volume and a strong brand image in the mind of Indian customers When the industry was deregulated
in 1993 the cost barrier had become so high that new companies could not dare to look at the small car segment
25
Instead they settled for the mid-size segment where both volumes and margins were expected to be high
However a shakeout in the Indian mid-size car segment the slowdown in international auto sales pushed
transnational auto majors into India which have now turned the tide against MULThe present generation small
cars launched recently are more contemporary in terms of both design and technology while Marutis small-car
technology is at least a decade old
Keeping the future growth potential of Indian market in mind the auto majors are prepared to bear losses for the
next 10 years This will help them to gain a good market share the long run and provide breathing space to
counter the strategic moves of the leader Hence the narrowing price differential between the old and the new
small cars is the first call of the auto majors against Maruti in Indian Market If Maruti has to try and match the
features of new generation small cars it would mean additional costs On the contrary if Maruti decides to
hold its price line and add new features it could translate into losses or at least low profits But MUL can still
bank on at least two Suzuki models the proposed 657-cc Cervo C and the current 996-cc Wagon R to battle its
rivals in the future
Chapter 43 The Advent of the Auto Majors
Besides bracing up for losses in the initial years auto majors like Hyundai and Daewoo are banking on exports
too At the moment export may look unattractive because of the South Asian meltdown but in the long run low
production costs and component-manufacturing skills will make India- made cars competitive at global market
place Hence they are looking India as a production base to cater to the growing Asian market by way of
outsourcing from Indian manufacturing base However many a hurdles they have to cross on the journey to
profitability
26
The investments necessary for a large plant are simply huge Daewoo has so far sunk Rs 2700 crore in a
120-lakh-unit-a-year plant Unlike China which has restricted the number of companies India has followed an
open door policy for car manufacturers which has resulted in emergence of fragmented markets with distributed
capacity
An Original Equipment Manufacturer (OEM) needs a minimum economic size of 150 lakh cars a year to attract
vendor interest Daewoo was able to slash the Cielos price as it is cheaper to import components because of the
devaluation of the South Asian currencies The auto majors are lobbying with the government to ease the strict
indigenisation norms in the new automobile policy so that they can import the components from other countries
This will help them to cut the prices and to go head on the market leader particularly in a price responsive market
like that of small car segment
The other argument is that with the given import duty of 103 per cent on Completely Knocked-Down Kits
(CKDs) which is the same as that on Completely Built-up Units (CBUs) and 68 per cent on components the
imports will become costlier and compel companies to localize their manufacture The exposure to currency
fluctuations which crippled the four Japanese light commercial vehicle projects in the late 1980s is also minimal
when a company localizes component manufacture
Besides lean manufacturing techniques like Just-In-Time (JIT) are possible only when the supplier is located
close to the manufacturing unit If Maruti is a success story it is only because it indigenised 85 per cent of its
components within five years of going on-stream
Then theres the question of servicing the replacement market for spares Customers typically expect
components to be available locally and at competitive prices Imports cannot guarantee that but it is a
27
tremendous job to localize components at the right quality and price given the supplier problems in prevalent in
India
An Original Equipment Manufacturerrsquos competitive advantage lies in its marketing skills Having achieved price
and technology parity it can easily woo the consumer with attractive financing schemes and superior after-sales
service Nudged by the competition most auto players have a clutch of schemes to offer Daewoo Motors India
provides interestfree car finance Ford Motor and General Motors have slashed interest rates MULs joint
venture finance company Maruti Countrywide is offering loans at 1350 per cent when the prevailing lending
rate is 17 per cent and above
Chapter 44 The After Sales Service Scenario
After sales service for cars is as critical as showroom deals Maruti services its 2 million customers through an
army of 174 dealers spread across the country It will be impossible for a company to duplicate such
infrastructure particularly with investments in a metro-based showroom going up to Rs 4 crore Margins in
retailing are moving from actual sales to after sales service
The problem of price war is evident with Auto majors as much as with dealers In a bid to woo the customers
dealers particularly in non-prime locations are cutting their margins It will not be surprising if single-brand
dealers eventually turn into multi-brand sellers in future
Doing so will benefit all the three constituents in the marketing chain the OEM the dealer and the buyer The
carmaker can expand his reach without expensive investment the dealer can increase his revenue and the
customer gets a variety of models and brands under one roof in future
The local partner will be the loser in this fierce battle Without the means to make either matching equity or
technological investment the Indian collaborator will be driven off the road
28
It has already happened to the Rs 166-crore DCM which tied up with Daewoo Motors and can happen to both
the Rs 1258-crore Hindustan Motors (Partner General Motors) and the Rs 360657 crore Mahindra amp Mahindra
(Partner Ford Motor)
So they are reconciled to adopting a minority role or becoming auto component vendors This list includes
Siddharth Shrirams Rs 430-crore Siel (Partner Honda) the Kirloskars (Partner Toyota) and the Munjals of the
Rs 2000-crore Hero Group (Partner BMW) And the evidence is compelling eg Hindusthan Motors has a
passive role in its joint venture with General Motors although the Opel Astra is manufactured at HMs Halol plant
in Gujarat The same can be forecasted about Mahindra and Mahindrarsquos joint venture with Ford Motor What can
prolong the life of the joint venture is distribution muscle as it will take at least five years for a transnational auto
major to build a strong distribution channel in this country
By all accounts the auto industry is headed for a glut With an estimated demand for cars to touch 9 lakhs in
2001-2002 the installed capacity will rise to 16 lakhs So the current growth rate in Indian market is not
sustainable There will be at least two years of stagnant or declining demand before the resumption of the growth
trendThere is a projected demand of 1-lakh cars in the mid-segment alone by 2001-2002 And the car numbers
will add up to around 6 lakh a year That will engender a shakeout which is already afoot in the other Asian
markets For instance poor off -take and a consequent build-up of car inventories has led to a fierce price-war in
China
Chapter 45 Market Potential of Indian Automobile Segment
The demand for the small car will continue to drive growth for the next five years Of the total sales of Maruti in
2000-2001around 85 per cent were small cars The Esteems sales dropped in the same period where as the small
cars drove MULs sales So demand for small cars will leap only if certain conditions are fulfilled
29
Rise in the Income Levels In the US auto demand rises by 4 per cent for every 1 per cent increase in the real
Gross Domestic Product but this is irrelevant for India as only the top 150 per cent of the population
can afford a car The demand can shoot up if the income levels of the top 5 per cent continue to rise in future
Level Of Motorization It is stagnant at 170 cars per 1000 people for decades However in the post-liberalization
period the motorization level has leaped to 370 cars per 1000 Although it is still lower than the levels in the
developed markets motorization is bound to rise further in the coming years
Chapter 451 Vehicle Prices
Falling imports and excise duties coupled with competition will continue to boost demand and
the prices are likely to fall further at least in the short run
Chapter 452 Consumer Finance
Over 60 per cent of customers opt for consumer finance That figure could go up if interest
rates continue to fall
Chapter 453 Infrastructure
Traffic congestion and bad roads could deter potential buyers from going for small cars
particularly in small cities of India The future is not very heartening in this aspect
Chapter 454 Product Availability
As manufacturers shift their attention to the small car more and more people will be able to
afford it and demand will only rise in the future period of time
30
Chapter 46 The Future-Indian Automobile
There is a sharp contrast in the buying behavior of Indian Consumer compared to their western counter parts yet
there is no doubt that Indian car market is going to increasingly resemble the latter In the West the industry is
likely to be dominated by three or four major players With a likely demand of 11 lakh cars by 2006 there will be
a few niche players like BMW Mercedes-Benz and Audi with luxury cars to offer Unless car manufacturers
have a large range of vehicle to offer they will be unable to subsidize their costlier models
The market will consolidate to few segments The carmaker has to make diverse models based on diverse and
flexible platforms Products like the stripped-down economy car the sports utility vehicle or the van should be
built on the same platform For the price-sensitive customers there can be a no-frills version a loaded version for
the middle customer and luxury car manufacturers can target the high-end customers
The fortunes of the autoobile industry will continue to hinge on the large price sensitive customers who will
graduate to the higher end of the market over a period of time
Until then the small car will continue to drive demand and most of the car-manufacturers are
gearing up for this eventuality
31
Chapter 5 Company Profile
ldquoTata Motorsrdquo
32
CHAPTER 5 Company ProfileTata Motors
Tata Motors previously known as Tata Engineering and Locomotive Co Ltd (TELCO) is one of the largest
companies in the Tata Group and one of Indias largest business houses Tata Motors is Indias leading
commercial vehicle manufacturer and the third largest passenger car manufacturer The company is the sixth
largest truck manufacturer in the world Tata Motors recently received the Balanced Scorecard Collaborative Hall
of Fame Award for having achieved a significant turnaround of its overall performance A comprehensive quality
improvement and cost cutting initiative in September 2000 has played an important role in the companys
turnaround from a loss of Rs 500 crores in the year ended March 2001 to a profit of Rs 28 crores in the first
quarter of 2002-2003
Tata Engineering and Locomotive Company (TELCO)
Chapter 51 History amp Evolution
Tata Engineering and Locomotive Company Ltd popularly known as Telco was incorporated in 1945 to
manufacture steam locomotives In 1954 the company diversified into automobile manufacturing through a
collaboration with Daimler-Benz for the manufacture of commercial vehicles By the time the collaboration ended
in 1969 Telco had not only become an independent producer of medium commercial vehicles (MCVs) with
negligible import contentbut had developed the capability of designing and developing such vehicles The
Company progressively widened its product range to cover heavy commercial vehicles (HCVs) and light
commercial vehicles (LCVs) implementing one expansion program after another
To sustain the unrelenting pace of its growth Telco added machining press and assembly
33
capacities set up its own forge and foundries and virtually created the countryrsquos automobile ancillary industry
The Company even developed facilities for designing and manufacturing state-of-the-art machine tools material
handling equipment dies and fixtures To accommodate the Companyrsquos growing activity base a large modern
complex was set up at Pune in western India and a new plant became operational at Lucknow in the north of the
country
To provide a business focus for the Companyrsquos main activity areas Telco has created twobusiness unitsrsquo -
Automobiles and Construction Equipment ndash both of which have notched up record-breaking results
Telco today has a domestic market share of 68 in the MCVHCV segment 64 in the LCV segment and 32
in the multi-utility segment Apart from commercial vehicles which range from 1 ton to 35 tons GVW Telcorsquos
automobile products also include passenger vehicles and an extraordinarily popular multi-utility vehicle All these
products have been developed inhouse by the Companyrsquos own RampD Center This Center is equipped with the
latest computeraided design hardware and software enabling the company to respond quickly to changing
customer needs both in India and abroad
Telco has been exporting its products since 1969 and currently exports about a tenth of its
output Export markets include the Middle East Africa and Southeast Asia as well as
developed countries in Europe like France UK and Spain It is intended that exports should account for 20 of
the automobiles sold by the Company
Telcorsquos second line of business Construction Equipment has also grown rapidly and the
Company currently commands a 61 share in the excavator market and 90 in the crawler cranes market in
India The hydraulically operated construction equipment made by the company is in collaboration with Hitachi
34
Construction Machinery Limited of Japan There are ambitious plans for widening the range of excavators made
by the company and for adding new lines of construction equipment A recent addition to the excavator range is
Backhoe Loader
Telco is one of Indias largest private sector companies With a turnover of Rs 6637 billion it is the countrys
leading commercial vehicle manufacturer and the worldrsquos sixth largest automobile company
The widely successful Tata Indica which is Euro 1 and 2 compliant is the countryrsquos first
indigenously designed developed and manufactured passenger car The company also
makes several other passengers vehicles including the Safari the Sumo the Sierra the Tata Estate and the
Tatamobile pick-up
The companyrsquos products have received wide acceptance not only in India but also in markets in the Middle East
Asia Africa and Europe
Chapter 52 Areas of business
The company manufactures medium heavy and light commercial vehicles multi-utility
vehicles and passenger cars It also makes general and special purpose machines for
automotive applications at its machine tool division These include NCCNC horizontal and inline machining
centers flexible manufacturing systems CNC cylindrical grinding machines and robots for welding cutting
painting and other applications
In 1999 the companyrsquos revenues from its four manufacturing plants at three locations in India were Rs 6637
billion ($15735 million) In 1998 they were Rs 7026 billion ($1893 million) (The average exchange rate in
1999 was Rs 4218 to one US dollar)
35
In the year ended 31 March 2000 the companyrsquos total exports were worth about Rs 50553 crore against about
Rs 60078 crore in the previous year
Locations
The companyrsquos manufacturing plants in India are at Jamshedpur in Bihar Pimpri and
Chinchwad near Pune in Maharashtra and Lucknow in Uttar Pradesh A fifth manufacturing facility is being set
up at Dharwad in Karnataka
Collaborations
The Company has technical tie-ups with
bull The Institute of Development in Automotive Engineering SPA Italy for assistance in
small car body design and styling
bull Nachi Fujikoshi Corporation Japan for robots for welding painting and other
automotive applications
bull Le Moteur Moderne France for the development of diesel and petrol engines for
passenger cars and
bull Robert Bausch GmbH Germany for application work on the engine management
system for 4 PL petrol engines
36
Chapter 53 Tata Motors ndashSuccessful Car Indica
TELCO launched Indica when the TATA group was in red Telco chairman Ratan Tata said that the 1400 cc car
Indica would drive the company out of the red
Tata while talking to reporters at the IETF 99 in a videoconference from Mumbai said that the overwhelming
response of over 125 lakh initial bookings for the Indica had come as a surprise It seems we touched the
national chord somewhere as people responded to the fact that this is the first Indian car said Tata Indica is not
the end of the road for Telco when it comes to passenger cars It is just the beginning as there are more to come
said Tata adding that the company was working on another mid-size car after Indica
Telco had to produce 60000 cars a year to break-even The group created two
organizations within Telco one dealing with commercial vehicles and the other with passenger cars The
company under took a major restructuring exercise whereby the passenger car and commercial vehicles divisions
would function as two separate business units Telco had a strategy to go for exports after addressing the initial
requirements of the domestic market
Awards and Recognition
In May 2000 Tata Engineering and Locomotive Company Ltd (Telco) won a national award for successful
indigenous technology used in the Indica car project The award titled National award for successful
commercialization of indigenous technology by an industrial concern for indigenous development and
commercialization of Tata Indica car was presented by the minister for human resource development science and
technology and ocean development
Dr Murli Manohar Joshi
37
In November 1999 Telco was awarded the Department of scientific and industrial research
national award for indigenous design of the Tata Indica It was the first company in India to implement stringent
emission norms well ahead of the mandate dates
Promotions
The Indica advertising made interest for the car go into overdrive The campaign revolved around the premise that
the Indica would not just meet peoples expectations it would exceed them Every advertisement has a story to
tell
Pre launch Campaign
The Indica campaign began in the right earnest in December 1998 It was advertised as the launch of a car that
will spell doom for the small cars It was directly aimed at Maruti 800 The ad line used in the first campaign was
ldquoCar makers will suddenly remember all the thing they forgot to give yourdquo This hinted that Indica would have
more features than any of the existing small cars Indica used the catch lines like ldquo More car per Carrdquo ldquoMore
dreams per carrdquo to suggest that Indica will be bigger in size to the existing small cars yet be in the small car
category It competes with the mid size cars on size and give them a run for their money with its cheaper price
tag
At the launch of the car TELCO claimed that the people would never have to suffer from a small car again and
that the n end of the year (1998) would be the end of the small cars
Launch Campaign
The launch campaign of Indica focussed on the many advantages that it offered over other cars in the same
segment It promised the customers more than the current offerings Its first advertisement carried the following
catch line ldquo50cc moped 100cc bike 800cc car Time you asked for morerdquo
38
It then concentrated its efforts on criticizing the negative aspects of Maruti 800 and highlighted how Indica has
removed those very defects and presented a very sophisticated and modern car to the Indian customer It even
pointed out that the shape of Maruti was very unconventional and that people would prefer the shape of Indica to
Maruti 800 The advertisement read ldquo Box shaped bubble shaped wedge shaped But then Gentlemen prefer
curvesrdquo
The launch campaign also focussed on the roomy interiors of Indica a feature not offered by Maruti at that point
of time Also the expertise of TATA in diesel engines and fuel efficiency of these were the highlight of the launch
campaign of Tata Indica
Post Launch Campaigns
While the Launch campaign focussed on the features of Indica the post launch advertisements focussed on the
superior after sales service and longer warranty periods offered by Indica
Telco was the first company to offer an 18-month warranty period on engine parts The most famous line used
during this campaign was ldquoWe could go on and on about service or give you the one word summary TATArdquo
While their main adversary was the Maruti 800 Telco felt that it could also tap the mid size segment using the
selling point of space given by Indica They carried a campaign which said ldquoForget small cars we even make big
cars feel smallrdquo
It then went on to highlight the fact that Indica was Euro II compliant even before it was legally binding upon car
manufacturers to do so It also highlighted the concrete wall safety test that Indica withstands and tried to
showcase the car as a safe and strong car
39
Chapter 6 COST REDUCTION TECHNIQUES
IN TATA MOTORSrsquoS INDICA
40
Chapter 6 Tata Indica - The Making Of The Small Car
with objective of minimizing costs
The research provides an understanding of the issues concerning the supply chain management system at
Telco in regard to its small car Indica It outlines how Telco built the supply chain for the car by leveraging its
existing competencies and how it transformed itself from an integrated truck manufacturer to an automobile
integrator and from a product-centric company to competence- centric company The case discusses various
components of the supply chain and emphasises how Telco orchestrated them with the objective of minimizing
costs
ldquoTelcorsquos 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 comerdquo
- Business India March 22 1999
In the early 1990s Telcorsquos Chairman Ratan Tata (Tata) was flirting with the idea of developing a small
car By mid-1994 a rudimentary design was in place In 1995 Telco announced that it planned to build a car
which would be priced close to the Maruti 800 shaped like the Zen and spacious as an Ambassador
Producing the new small car ndash Indica ndash represented a different kind of challenge for Telco Should Tata succeed he
would change the face of Telco As a truck-maker Telco was so integrated that it even made it own castings and
forgings As an automaker it would have to focus on the value chain that stretched between raw materials and after-sales
41
service as well as assembling the parts into the complete automobile
For its new venture Telco outsourced 80 of the components (1200 of its 1500-plus parts) from 200-odd vendors To
develop the Indica Telco had to combine the learnings from its predecessors with its own unique supply chain
management strategies to ensure a sustainable low-cost platform
By learning to build and manage a supply chain it would set the ground for leveraging the capabilities of the
automotive component-manufacturers who already operated in its target markets In other words Telco planned
to use its skills as an integrator--bringing together products and services from both upstream and downstream
operations and packaging them for the customer under a brand name in its new venture
Globally a car could be built in 48 months with an investment of US $ 3 billion (Rs 1275 billion) Indica was
built in 31 months on a budget of Rs 17 billion This seemed to have been possible by focussing on the supply
chain
Chapter 61 THE OUTSOURCING STRATEGY
For Telco outsourcing seemed to be one of the most difficult aspects of producing the Indica Unlike global
automobile majors Ford Motors or General Motors which had a global vendor-base that could be replicated on
a smaller scale in India Telco had to create a vendor-base from scratch Moreover it did not have the expertise
either to design a car or to build an engine for it
Against this background Telco had to take its primary lsquomake-or-buyrsquo decisions for the key inputs-design
engine and transmission Telco decided to shop globally for the best deals and use its own expertise to make
42
whatever modifications were needed
(Refer Table I for the components outsourced by Telco)
TABLE I
OUTSOURCING THE COMPONENTS
Components Supplier
5 door hatchback IDEA Italy
Engine Institut Francais du Petrol
France
Assembly Line Nissanrsquos Plant Australia
Presses Mercedes Benz
Pistons and Piston rings India Pistons
Electrical components and fuel injection
systems Lucas-TVS
Steering systems Rane TRW Steering Systems
Clutch facings and rear (drum) brake linings Sundaram Brake Linings (SBL)
Seating Systems Tata-Johnson Controls
Radiators Tata-Toyo
Rear view mirrors Tata-Ficosa
Front and rear bumper dash-board inside
trims Tata-Auto Plastics
Air conditioning kits Subros Ltd
Wind screens and windows Asahi Glass
Fuel lines Imperial Auto
Differential assemblies Sona Steering
43
Sheet metal items JBM Tools
Source Business Today March 22 1999 and December 7 1999
Telco turned to the Italian company IDEA for the product-design It bought the engine from the Institut
Francais du Petrol of France and applied its engineering skills to adapt the engine requirements The transmission
was developed in-house at its Engineering Research Centre (ERC) at Pune Of the Rs 25 billion it spent on
designing the Indica the major share went in buying design tools and training its engineers in new skills Telcorsquos
engineers traveled regularly to the sites of its technology suppliers to receive training before the actual delivery
of the machines
Telco also outsourced its assembly line from Nissanrsquos plant in Australia for just Rs 900 million Telco
transplanted it at its factory at Chikli near Pune which was newly set up for Indica A new assembly line of the
same proportions would have cost at least Rs 4 billion Again of the 3 presses for the Indica only 1 was new
acquired for Rs 900 million while the other 2 were bought second-hand from Mercedes-Benz and modified to
suit the Indica
Telcorsquos engineers and the ERC did the application engineering programming installation and commissioning to
save around 45 of the technology costs The tooling for the car too was supplied internally by Telcorsquos machine
tool division To manage the supply chain better Telco kept the number of suppliers for Indica to just 200 as
compared to about 1000 for trucks Most of the parts were supplied by Telcorsquos traditional suppliersmdash TVS Rane
Group and Tata Auto Component Systems (Taco) who were single source suppliers Pressed parts assemblies
and drive shafts were sourced from single vendors
44
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
Chapter 7 SWOT Analysis of Cost Reduction Techniques
in Automobile
Chapter 8 Recommendation
81 Main Indicators
82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
83 Investment Margin is Key to Survival
84 Focus on Adequacy of Equity Capital
Chapter 9 Bibliography
Chapter 10 References
Chapter 11 Annexures
3
Chapter 1 Introduction
This research work related to customer research study titled ldquoEffectiveness Of Cost Reduction Techniques In The
Automobile Sectorrdquo throws a bucket of ice water in the face of some core business management tenets mdash plus a
number of keystone principles of the marketing distribution channel advertising and customer relationship
management (CRM) industries
Freed from the editing and selective hearing businesses often invokes to avoid hearing unpleasant
truths customers dish out an earful to companies about what they want what they dont want and what they
ignore mdash and how they really make purchase decisions
Businesses need to rethink their logic and develop new operating models based on customer centric behaviors and
valuations
India has became manufacturing Hub for automobile and textile industries Where FDI Has been done in these
sectors So its task for Operational Managers to optimize Cost with respect to Capital employed This may helped
companies to gain maximum Profit with minimum effort So Competitive Pricing can be done by companies to
competitor with their competitors This Paper aims to study effective methods for Direct Cost reduction
techniques that currently being implemented by Automobile
The auto industry is another beehive of innovation why so many MNCs were setting up car plants in
Tamil Nadu Because the state produces an inexhaustible supply of engineers maybe 200000 per year Many
4
come from private engineering colleges of poor quality But even if half the graduates are sub-standard that still
leaves 100000 competent innovative technicians Multinational car companies originally came to India for the
potentially huge domestic market To cut costs they had to use local components which initially were of low
quality But soon the interaction between component manufacturers and MNCs led to not just quality
improvement but innovations that nobody had dreamed of earlier Today Indian auto component companies are
doing computer-aided design and computer-aided manufacturing constantly coming up with new designs that
reduce cost and increase efficiency This design-savviness has made India a global player ex-porting over $1
billion worth of components last year And car exports have shot up to over 100000 in 2003-04 In the bad old
days of the licence-permit raj companies had no incentive to do RampD Getting a foreign collaboration approval
ensured monopoly profits for years But the new competition brought in by economic liberalisation in the 1990s
made RampD is an essential tool to compete and survive Tatarsquos Indica car is a prime example Bajaj Auto once
depended on technical know-how from Kawasaki and TVS on Suzuki Today both two-wheeler companies rely
overwhel-mingly on in-house RampD this alo-ne will enable them to withstand the new challenge from Honda
Other miracle Asian economies like Korea and Taiwan used labour-intensive manufacturing as their launching
pad taking advantage of their low wages Later they moved up the value chain India missed the bus of labour-
intensive exports but has now caught the jet plane of brain-power exports This began in computer software It
then spread to design-intensive manufacturing And it is now sparking an RampD revolution
After booming years of 2002 and 2003 the sales growth is slowing down and the prices are falling
Competition is becoming fiercer Pressure on profit margins and falling market shares force many local producers
to move towards exports to foreign markets
Up to 2010 India is going to become the second biggest automotive market in the world Forecasters predict the
country will be the fourth-largest producer of vehicles in the world by 2008 and may be the third-largest producer
5
by 2010 Indian consumers are demanding high quality cars so prices must be cut and costs minimized (source
Ernst amp Young)
In 2005 India produced nearly five times as many motor vehicles as in the early 1990s With annual production
nearing six million vehicles it is on pace to overtake Germany as the third largest national vehicle producer and
would trail only the United States and Japan in total vehicle output
Among the studys key findings are
To Study Cost Reduction techniques practiced in Manufacturing Industries(Automobile)
(a) Study of Effective Cost Reduction techniques in Supply Channel of distribution Network
(b) Study of Effective Cost Reduction techniques in Procurement of Raw Materials
(c) Study of Effective Cost Reduction techniques in Operational Management
The presence of a growing gap between customer expectations and company behaviors which creates opportunity
for some companies and increasing risk to others At a high level a companys degree of customer focus was the
most important purchase decision factor for customers and by a very wide margin
In terms of specific company behaviors mdash delivering customer-relevant quality products as expected was the
most desired factor very closely and unexpectedly followed by companies empowering their employees
6
Chapter 2 RESEARCH METHODOLOGY
7
8
Chapter 2 Research Methodology
CHAPTER 21 Primary Objective
The founder of the Japan-based Kaizen Institute Masaaki Imai defined Kaizen in his book Kaizen - The Key to
Japans Competitive Success as Kaizen means continuous improvement in the personal life home life social
life and working life Automobile companies applied Kaizen for continuous improvement in their operations
When Kaizen is applied to the workplace it means continuous improvement for - managers and workers Thus
Kaizen involves everyone in an organization to make improvements without large capital investments It can be
seen as a culture of continuous sustained improvement focusing on eliminating waste in all systems and
processes The Kaizen strategy begins and ends with people With Kaizen an involved leadership guides people
continuously to improve their abilities to meet high quality expectations low cost and on-time delivery which in
turn helps the organization gain a competitive edge
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
- Jay Wetzel Vice President and General Manager GM Technical Center commenting on the benefits
derived from CADCAMCAE tools in 200
To Study Operations of Automobile Company(Tata Motors)
(a) Study of Effective Cost Reduction techniques in Supply Channel of distribution Network
9
(b) Study of Effective Cost Reduction techniques in Procurement of Raw Materials
(c) Study of Effective Cost Reduction techniques in Operational Management
According to the Council of Logistics Management Supply Chain Management ldquothe process of planning
implementing and controlling efficient and cost effective flow of materials in-process inventory finished goods
and related information from point-of-order to point-of-consumption for the purpose of conforming to customer
requirements as efficiently as possiblerdquo The automobile industry has undergone significant structural and other
changes in the last decade or so In view of the present globalisation implementation of lean production and the
development of modularisation have changed the relationships between automobile assemblers (OEMs) and their
suppliers especially those in the first tierStiff competition among manufacturers will result in more mergers or
acquisitions The challenges automobile manufacturers and suppliers face include improving quality meeting cost
reduction targets and developing time to market
CHAPTER 22 Hypothesis
Is Automobile companies are following certain guidelines for Operations or not
Hypo 1- Network Planning ndash This is one of the most important issues for SCM
Determination of production requirements and inventory levels at the vendorrsquos facility for each product and
development of transportation flows between these facilities to the warehouses in a best possible way to reduce
total production inventory and ransportation costs with fulfilment of service level requirements
10
Hypo 2- IT and Decision Support Systemndash
This is another important challenge for SCM Today SCM is driven by the scope and opportunities appearing due
to abundance of data and the savings which can be achieved through efficient analysis of these data What data
should be transferred with its significance and most importantly what infrastructure is required internally and
between its partners is very important
Hypo 3- Supply chain integration and strategic partnering ndash
In SCM information sharing and operational planning are crucial for successfully integrated supply chain
CHAPTER 23 RESEARCH DESIGN
The study was conducted on part of Business Expansion plan of Automobile industry to expand their
existing Business On this part Exploratory Survey was conducted to know about Operatational Strategies of
automobile companies
This Market research is EXPLORATORY RESEARCH DESIGN Arguments in favors of EXPLORATORY
RESEARCH DESIGN is-
-It tests the Hypothesis examines the relationship and comes to a conclusion It test Hypothesis whether -
Is Automobile Companies using Network Planning
Is Automobile Companies using IT and Decision Support system
Is Automobile Companies Using Supply Chain Integration And Strategic Partnering
Findings and analysis are used for Decision making on account of Surveyed Data
11
In This type of Exploratory Research design involves Collection of Information from Secondary Data
In this Automobile Survey The whole study is Secondary data based oriented
a Secondary Data from Internet on Manufacturing Industries
b Journals on Cost reduction Techniques on manufacturing Industries
c Scholarly articles for brief about indian manufacturing industries
d Books on Operational management
e Review Articles on Supply Chain-Upstream and Down stream
f Study for Opeartion Research Techniques- Transportation Techniques
CHAPTER 24 Scope of the Study
Among the studys key findings are
Indian automobile and auto components industry is on a roll and there is an immense scope for management
for enhancing the supply chain of the sector India has become a favourable destination for foreign companies
to establish their facilities and form alliances with domestic companies Low cost of manufacturing
and conducive government support have been the major drivers for foreign companies investing in India
Indiarsquos large young population higher GDP growth and most importantly per capita passenger car penetration
is low at 85 car per thousand population which creates great opportunity for industry players to offer
an affordable four-wheeler alternative to the two-wheeler customers According to Planning Commission of India
Indian automobile industry is expected to grow at CAGR of 15 over the next five years The Indian economy is
12
now gaining momentum in the world of free trade and liberal movements of goods and services between
countries Therefore efficiency in supply will be critical for Indiarsquos automobile success
NEED FOR MATERIALS-SYSTEMS APPROACH
Improved materials and materials processing can and must play a large role in generating productive and effective
responses to the forces that will drive the automotive industry in the future However these forces often pull in
diverse directions when specific technological actions are considered For example aluminum alloys can be used
to reduce vehicle weight thereby reducing emissions and improving fuel economy but the added materials costs
currently offset these advantages for many applications As a result steel is still the major material of choice for
automobile construction today and will be difficult to supplant for the foreseeable future
Indiarsquos process-engineering potential can be utilised for redesigning of manufacturing
processes to make them more labour intensive and less capital intensive which will enable the MNCrsquos to reduce
their overall costs substantially For instance de-automating of the production processes which are applied in
Western countriesrsquo factories can reduce the overall manufacturing cost of some components by up to 20
In case of product engineering India has emerged as a leading destination in the world
Indiarsquos strength is in its design which helps in reducing costs For instance redesign of the Maruti Altorsquos steering
system has cut down its weight by 15 India with its skilled engineers can design a product very fast which in
turn reduces its development cost and lead times For example an Indian supplier took six months to design a
steering system for an automaker It took more than four years to develop similar system with suppliers in the
other low-cost countries Several automobile manufacturers have already set up their auto component facilities in
India
13
CHAPTER 25 Limitations
For Automobile Study Primary Data varies wrt Secondary Data on account of theoretical practices in field then
practical theories
With increasing disposable incomes and ever-growing burden on the public modes of transport the Indian
passenger car industry is heading for a bright future provided car manufacturers offer a world class cars that give
value for money use novel marketing concepts to entice potential buyers and offer good after-sales service
Demand for passenger cars in FY2002 is projected at approximately 970755 units while production is expected
to reach 1210000 units The year is likely to witness a spurt in exports due to excess supply and liberalization of
export policy by the government
Some of the future strategies that need to be addressed while entering in to Indian small car market include the
redesign of the vehicle to suit the Indian road conditions and to develop aggressive marketing strategy to counter
the cost advantage enjoyed by dominant players like Maruti due to high capacity utilization With growing
number of two wheeler owners opting for used cars vehicles with higher resale value and excellent service
network are likely to account for a major market share in the near future Moreover the introduction of Euro III
and Euro IV norms in the near future is likely to increase the scrapping rates of cars
Exports are likely to increase in the near future with the entry of international car giants like Daewoo Hyundai
Honda Siel GM and Ford that intend to use India as a manufacturing production base
14
Chapter 3 CRITICAL REVIEW OF
LITERATURE
15
CHAPTER 3 CRITICAL REVIEW OF LITERATURE
A just released customer research study titled Customers Say What Companies Dont Want to Hear throws a
bucket of ice water in the face of some core business management tenets mdash plus a number of keystone principles
of the marketing advertising and customer relationship management (CRM) industries
Greenberg adds Customers Say What Companies Dont Want To Hear proves a mission-critical strategic point
Businesses need to rethink their logic and develop new operating models based on customer centric behaviors and
valuations
Commenting on the findings Paul Greenberg author of the industry best-seller CRM at the Speed of Light
Customer Strategies for the 21st Century says Lee and Mangen have verified and amplified with hard data
the growing perception that the new breed of customer is here to stay and businesses need to react mdash or risk their
very existence
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 While a top manager should be the ideal customer he
should also be the greatest critic of his companys products If the CEO compromises or is only looking at the
margins then even if he is successful the companys success will be short lived
- Ratan Tata the Chairman Tata Group
16
Chapter 31 Automobile Market Overview
The domestic automobile market has been growing at 142 per cent CAGR over the past 4 years (2000-01 to
2004-05) while the auto components market has been growing at 192 per cent CAGR (2000-01 to 2003-04) The
industry (OEMs and suppliers together) contributed nearly 4 per cent to the countryrsquos GDP in 2003-04 The
automotive sector also offers significant employment opportunities It employs 045 million people directly and
around 10 million people indirectly
The industryrsquos capabilities in design engineering and manufacturing have been recognised the world over and
most automotive majors are looking to increasingly source auto components from India
India is emerging as one of the most attractive automotive markets in the world and is poised to become a key
sourcing base for auto components The table below captures the highlights of the sector in India that illustrates
its growing significanceSee Annexure A amp B
Indian Automobile Industry
Largest three wheeler market in the world
2nd largest two wheeler market in the world
4th largest passenger vehicle market in Asia
4th largest tractor market in the world
5th largest commercial vehicle market in the world
17
Chapter 32 Automobiles - Domestic Performance
The production and domestic sales of the automobiles in India have been growing strongly While production
increased from 48 million units in 2000-1 to 85 million units in 2004-05 (a CAGR of over 15 per cent) domestic
sales during the same period have gone up from 46 million to 79 million units (CAGR 142 per cent) A positive
trend in the domestic market is that the growth has not been driven by one or two segments but is consistent
across all key segments Two wheelers which constitute the majority of the industry volume have been growing
at a rate of 143 per cent three wheelers at a rate of 14 per cent and passenger vehicles at a rate of 113 per cent
Commercial vehicles have been growing at a higher rate of nearly 235 per cent although from a lower base
Since nearly all macro-economic indicators ndash GDP infrastructure population demographics interest rates etc ndash
are showing a favourable trend the domestic market for automobiles in India is expected to continue on its
growth trajectory
Chapter 33 Exports of automobiles from India
While the domestic sales of automobiles have been increasing at a significant rate exports have taken a quantum
leap in recent years The exports of automobiles from India have been growing at a CAGR of 39 per cent for the
past four years Exports growth has been spearheaded by the passenger vehicle segment which has grown at a
rate of 574 per cent
As a result the share of passenger vehicles in overall vehicle exports has increased from 18 per cent in 1998-99 to
26 per cent in 2004-05 Europe is the biggest importer of cars from the country while predominantly African
nations import buses and trucks The Association of South East Asian Nations (ASEAN) region is
the prime destination for Indian two wheelers
18
Chapter 34 REVIEW OF THESIS DONE
This is easy to understand because the per capita disposable income of the people has gone up remarkably Over
the last five years per capita personal disposable income has gone up by around 8 which has increased
purchasing capacity of the people in the country Other factors have also contributed to this high growth in Indian
automobile sector These include lowering age of first car users shorter replacement cycles rising duel income
families nw technology which is lowering cost of ownership low car penetration in the country and most
importantly growing steel production in the country In addition wide variety and easily available financing
options are also some of the major reasons for surge in demand for automobiles in India
Global automobile manufacturers are consistently streamlining their business process by outsourcing their non-
core activities to low-cost countries like IndiaGlobal automobile manufacturers are under tremendous pressures
to innovate their manufacturing process and at the same time to reduce costs In view of the present global
competitiveness they must not only develop new features to strengthen their customer requirements but also
follow the environmental and safety standards In addition the base price of a car is expected to remain same over
the next decade As a result companies are forced to source more components from low-cost countries like India
According to Mckinsey global outsourcing of automobile and auto components would reach US$375 billion by
2015 from US$65 billion in 2002 India has plenty of scope to garner this potential According to the management
consulting firm India has the potential to notch this opportunity and reach up to US$25 billion to emerge as
major sourcing destinations along with China Mexico and Thailand Besides low cost Indias auto components
industry has the major advantage of enormous skills in process product and capital engineeringmdashits excellent
manufacturing history and good education system
19
Human beings think our way is the best but at Toyota we are told we have to always change We believe there is
no perfect way so we continue to search The goal is to break the current condition through Kaizen
- Shoichiro Toyoda Chairman Toyota Motor Corporation in December 2000
When Kaizen is applied to the workplace it means continuous improvement for - managers and workers Thus
Kaizen involves everyone in an organization to make improvements without large capital investments It can be
seen as a culture of continuous sustained improvement focusing on eliminating waste in all systems and
processes The Kaizen strategy begins and ends with people With Kaizen an involved leadership guides people
continuously to improve their abilities to meet high quality expectations low cost and on-time delivery which in
turn helps the organization gain a competitive edge
The production divisions council which checked the plants objectives occasionally modifying them taking into
account the companys profit targets replaced the production allowance councils After approval these objectives
became the Kaizen norm of each plant in terms of production efficiency The method of determining the
production efficiency was altered to make it less constrained as the standard time was fixed by measuring the time
really required for workers operations whereas earlier standard time was fixed on the basis of the best standard
time marked in the past
20
Chapter 4 Industry Profile
21
CHAPTER 4 Industry Profile
The Trans-nationals were also serious about developing vendors in India India is
bound to become an important destination for the global auto industry It took the financial turmoil in South East
Asia and the slowdown in the Chinese auto market to reinforce the targeting to Indian Market The new interest in
the small car segment also reflects certain amount of bullishness on the part of auto manufacturers about India
Despite projected over capacities--and current losses carmakers continued to queue
up their investments for small car segment To day there are 10 global auto majorsmdashincluding the $13-billion
Suzuki Motor (Japan) the $65-billion Daewoo (South Korea) the $147-billion Ford (US) the $47-billion Fiat
(Italy) and the $168-billion General Motors (US) operating in Indian Market
Chapter 41 The Pre 1997 Automobile Market
As late as 1997 the auto market in India was clearly segmented At the entry level
were MULs 800-cc car--priced between Rs 210-lakh and Rs 245 lakh--and the Omni at Rs 175 lakh At the
next level were the 993-cc Zen--priced at Rs 370 lakh--and the 999-cc Fiat Uno (Rs 362 lakh) Then came the
1300-cc Esteem models--priced between Rs 469 lakh and Rs 595 lakh--the 1498-cc Cielo (Rs 620 lakh) and
the 1598-cc Opel Astra (Rs 752 lakh) followed by premium cars like Mercedes-Benzs E-220 (Rs 22 lakh)
Changing Lanes
Two events have upset the equations in the price-segmented car market Daewoo has
Changed the lanes with the Cielo which is now priced at Rs 490 lakh and competes with the Zens top-end
model (Rs 440 lakh) and the Esteems lower-end version (Rs 469 lakh) Ceilo has created a new value segment
where the price is not proportionate to the size Daewoos strategic response has very clearly redefined
differentiation from price or size to value
22
Hyundai Motors India a subsidiary of the $27-billion Hyundai of South Korea launched
its 999-cc Santro at the Auto Expo 1998 in Delhi The model comes in five variants with the non-air-
conditioned manual transmission model priced at Rs 280 lakh and the semiautomatic air-conditioned GLS
model priced between Rs 315 lakh and Rs 4 lakh ClearlyHyundais strategy is aimed at taking on the market
leader Maruti Udyog Limited But by pricing the deluxe model at Rs 4 lakh it is also bridging the gap between
the small and the middle car segments At present Marutirsquos Esteem LX is priced Rs 70000 more than the
Santro GLS while the Cielo is priced Rs 90000 more
The further entry of new players will only blur the segments New entrants will be
involved in price war to find a foothold in the Indian market Few of the examples include
TELCOs positioning of its 1400-cc Indica car--launched in November 1998 and priced close to Marutirsquos 800-cc
model as a small carand Honda sneaking its 1300-cc City into the segment vacated by the Cielo although it is
an accepted fact that pricing or positioning cannot be done in isolation In a crowded market that must depend on
the available strategic opportunities
By creating new segments companies can broaden their market base increase
capacity utilization levels pre-empt competitors market entry moves and importantly lower costs While Maruti
did that by launching three versions of the Esteem TELCO accomplished it by using a common platform for the
Sumo the Estate and the Sierra models Hyundai is also planning to come to the market with five variants in near
future At high volumes costs can be lowered by more than 20 per cent across variants due to experience curve
effect
Configuring the sticker price for a car in the market today is no more a functional
decision It has become a strategic decision as it identifies the key segmentrsquos response
23
elasticity to the market offer The two key inhibiting factors for the poor response to the auto war fare in Indian
Car Market are basically the low per capita income at $350 (Rs 14000 at current prices) and the high
manufacturing costs A large part of the population expected to graduate from two wheelers to four wheelers has
not responded as they were supposed to during this period of time The domestic auto giant Maruti Udyog
limited still forces the new players to benchmark themselves against its products which roll out from a
depreciated yet high-volume plant It enjoys the fast mover as well as the cost advantage with the higher capacity
utilisation that helps him to cut costs across as more cars you make the cheaper they get
With the worldrsquos second largest and fastest-growing population there is no doubt that Indiarsquos potential in both
economic and population terms and the effect it will have on the auto industry in the next years During the last
two years export from this sector has grown significantly owing mainly to the export of cars and two-three-
wheelers
The industry is characterized by a very high percentage (75) of production in the 23 wheeler sector India ranks
as the largest manufacturer of motorcycles and second largest in manufacturing of scooters in the world India
today is also the second largest manufacturer of tractors as well The industry has intense forward and backward
integration
The Indian automotive industry had experienced an extraordinary growth due to the improvement in the living
standards of the middle class and an increase in their disposable incomes Moreover the liberalization steps such
as relaxation of the foreign exchange and equity regulations reduction of tariffs on imports and refining the
banking policies initiated by the Government of India have played an equally important role in bringing the
Indian Automotive industry to great heights
It is estimated that the sale of passenger cars have tripled compared to their sale in the last five years Thus the
sale of cars has reached a figure of 1 million users and is expected to increase further Its also to be noted that the
24
demand for luxurious models SUVs and mini-cars for family owners have shot up largely due to increase in the
consumers buying capacity
The Indian automotive market
India country fact file 2005
Population 1 080 264388
Per Capita GDP (PPP) $3400
GDP Growth Rate 71
Total automotive sales 2005 1 439604 (889333)
Total automotive production 2005 1 643460 (1 000567)
Market growth 2005 vs 2004 70 (64)
Best sold model PC segment 2004 Maruti Alto (168)
Best sold model LCV segment 2004 Maruti Omni (213)
(passenger cars) (market share in segment)
Source httpwwwsegmentycomIndiahtm
Chapter 42 The Protected Indian Domestic Automobile Sector
MUL which set up shop in 1984 had 10 long years of relative protection to emerge as a formidable competitor
with high volume and a strong brand image in the mind of Indian customers When the industry was deregulated
in 1993 the cost barrier had become so high that new companies could not dare to look at the small car segment
25
Instead they settled for the mid-size segment where both volumes and margins were expected to be high
However a shakeout in the Indian mid-size car segment the slowdown in international auto sales pushed
transnational auto majors into India which have now turned the tide against MULThe present generation small
cars launched recently are more contemporary in terms of both design and technology while Marutis small-car
technology is at least a decade old
Keeping the future growth potential of Indian market in mind the auto majors are prepared to bear losses for the
next 10 years This will help them to gain a good market share the long run and provide breathing space to
counter the strategic moves of the leader Hence the narrowing price differential between the old and the new
small cars is the first call of the auto majors against Maruti in Indian Market If Maruti has to try and match the
features of new generation small cars it would mean additional costs On the contrary if Maruti decides to
hold its price line and add new features it could translate into losses or at least low profits But MUL can still
bank on at least two Suzuki models the proposed 657-cc Cervo C and the current 996-cc Wagon R to battle its
rivals in the future
Chapter 43 The Advent of the Auto Majors
Besides bracing up for losses in the initial years auto majors like Hyundai and Daewoo are banking on exports
too At the moment export may look unattractive because of the South Asian meltdown but in the long run low
production costs and component-manufacturing skills will make India- made cars competitive at global market
place Hence they are looking India as a production base to cater to the growing Asian market by way of
outsourcing from Indian manufacturing base However many a hurdles they have to cross on the journey to
profitability
26
The investments necessary for a large plant are simply huge Daewoo has so far sunk Rs 2700 crore in a
120-lakh-unit-a-year plant Unlike China which has restricted the number of companies India has followed an
open door policy for car manufacturers which has resulted in emergence of fragmented markets with distributed
capacity
An Original Equipment Manufacturer (OEM) needs a minimum economic size of 150 lakh cars a year to attract
vendor interest Daewoo was able to slash the Cielos price as it is cheaper to import components because of the
devaluation of the South Asian currencies The auto majors are lobbying with the government to ease the strict
indigenisation norms in the new automobile policy so that they can import the components from other countries
This will help them to cut the prices and to go head on the market leader particularly in a price responsive market
like that of small car segment
The other argument is that with the given import duty of 103 per cent on Completely Knocked-Down Kits
(CKDs) which is the same as that on Completely Built-up Units (CBUs) and 68 per cent on components the
imports will become costlier and compel companies to localize their manufacture The exposure to currency
fluctuations which crippled the four Japanese light commercial vehicle projects in the late 1980s is also minimal
when a company localizes component manufacture
Besides lean manufacturing techniques like Just-In-Time (JIT) are possible only when the supplier is located
close to the manufacturing unit If Maruti is a success story it is only because it indigenised 85 per cent of its
components within five years of going on-stream
Then theres the question of servicing the replacement market for spares Customers typically expect
components to be available locally and at competitive prices Imports cannot guarantee that but it is a
27
tremendous job to localize components at the right quality and price given the supplier problems in prevalent in
India
An Original Equipment Manufacturerrsquos competitive advantage lies in its marketing skills Having achieved price
and technology parity it can easily woo the consumer with attractive financing schemes and superior after-sales
service Nudged by the competition most auto players have a clutch of schemes to offer Daewoo Motors India
provides interestfree car finance Ford Motor and General Motors have slashed interest rates MULs joint
venture finance company Maruti Countrywide is offering loans at 1350 per cent when the prevailing lending
rate is 17 per cent and above
Chapter 44 The After Sales Service Scenario
After sales service for cars is as critical as showroom deals Maruti services its 2 million customers through an
army of 174 dealers spread across the country It will be impossible for a company to duplicate such
infrastructure particularly with investments in a metro-based showroom going up to Rs 4 crore Margins in
retailing are moving from actual sales to after sales service
The problem of price war is evident with Auto majors as much as with dealers In a bid to woo the customers
dealers particularly in non-prime locations are cutting their margins It will not be surprising if single-brand
dealers eventually turn into multi-brand sellers in future
Doing so will benefit all the three constituents in the marketing chain the OEM the dealer and the buyer The
carmaker can expand his reach without expensive investment the dealer can increase his revenue and the
customer gets a variety of models and brands under one roof in future
The local partner will be the loser in this fierce battle Without the means to make either matching equity or
technological investment the Indian collaborator will be driven off the road
28
It has already happened to the Rs 166-crore DCM which tied up with Daewoo Motors and can happen to both
the Rs 1258-crore Hindustan Motors (Partner General Motors) and the Rs 360657 crore Mahindra amp Mahindra
(Partner Ford Motor)
So they are reconciled to adopting a minority role or becoming auto component vendors This list includes
Siddharth Shrirams Rs 430-crore Siel (Partner Honda) the Kirloskars (Partner Toyota) and the Munjals of the
Rs 2000-crore Hero Group (Partner BMW) And the evidence is compelling eg Hindusthan Motors has a
passive role in its joint venture with General Motors although the Opel Astra is manufactured at HMs Halol plant
in Gujarat The same can be forecasted about Mahindra and Mahindrarsquos joint venture with Ford Motor What can
prolong the life of the joint venture is distribution muscle as it will take at least five years for a transnational auto
major to build a strong distribution channel in this country
By all accounts the auto industry is headed for a glut With an estimated demand for cars to touch 9 lakhs in
2001-2002 the installed capacity will rise to 16 lakhs So the current growth rate in Indian market is not
sustainable There will be at least two years of stagnant or declining demand before the resumption of the growth
trendThere is a projected demand of 1-lakh cars in the mid-segment alone by 2001-2002 And the car numbers
will add up to around 6 lakh a year That will engender a shakeout which is already afoot in the other Asian
markets For instance poor off -take and a consequent build-up of car inventories has led to a fierce price-war in
China
Chapter 45 Market Potential of Indian Automobile Segment
The demand for the small car will continue to drive growth for the next five years Of the total sales of Maruti in
2000-2001around 85 per cent were small cars The Esteems sales dropped in the same period where as the small
cars drove MULs sales So demand for small cars will leap only if certain conditions are fulfilled
29
Rise in the Income Levels In the US auto demand rises by 4 per cent for every 1 per cent increase in the real
Gross Domestic Product but this is irrelevant for India as only the top 150 per cent of the population
can afford a car The demand can shoot up if the income levels of the top 5 per cent continue to rise in future
Level Of Motorization It is stagnant at 170 cars per 1000 people for decades However in the post-liberalization
period the motorization level has leaped to 370 cars per 1000 Although it is still lower than the levels in the
developed markets motorization is bound to rise further in the coming years
Chapter 451 Vehicle Prices
Falling imports and excise duties coupled with competition will continue to boost demand and
the prices are likely to fall further at least in the short run
Chapter 452 Consumer Finance
Over 60 per cent of customers opt for consumer finance That figure could go up if interest
rates continue to fall
Chapter 453 Infrastructure
Traffic congestion and bad roads could deter potential buyers from going for small cars
particularly in small cities of India The future is not very heartening in this aspect
Chapter 454 Product Availability
As manufacturers shift their attention to the small car more and more people will be able to
afford it and demand will only rise in the future period of time
30
Chapter 46 The Future-Indian Automobile
There is a sharp contrast in the buying behavior of Indian Consumer compared to their western counter parts yet
there is no doubt that Indian car market is going to increasingly resemble the latter In the West the industry is
likely to be dominated by three or four major players With a likely demand of 11 lakh cars by 2006 there will be
a few niche players like BMW Mercedes-Benz and Audi with luxury cars to offer Unless car manufacturers
have a large range of vehicle to offer they will be unable to subsidize their costlier models
The market will consolidate to few segments The carmaker has to make diverse models based on diverse and
flexible platforms Products like the stripped-down economy car the sports utility vehicle or the van should be
built on the same platform For the price-sensitive customers there can be a no-frills version a loaded version for
the middle customer and luxury car manufacturers can target the high-end customers
The fortunes of the autoobile industry will continue to hinge on the large price sensitive customers who will
graduate to the higher end of the market over a period of time
Until then the small car will continue to drive demand and most of the car-manufacturers are
gearing up for this eventuality
31
Chapter 5 Company Profile
ldquoTata Motorsrdquo
32
CHAPTER 5 Company ProfileTata Motors
Tata Motors previously known as Tata Engineering and Locomotive Co Ltd (TELCO) is one of the largest
companies in the Tata Group and one of Indias largest business houses Tata Motors is Indias leading
commercial vehicle manufacturer and the third largest passenger car manufacturer The company is the sixth
largest truck manufacturer in the world Tata Motors recently received the Balanced Scorecard Collaborative Hall
of Fame Award for having achieved a significant turnaround of its overall performance A comprehensive quality
improvement and cost cutting initiative in September 2000 has played an important role in the companys
turnaround from a loss of Rs 500 crores in the year ended March 2001 to a profit of Rs 28 crores in the first
quarter of 2002-2003
Tata Engineering and Locomotive Company (TELCO)
Chapter 51 History amp Evolution
Tata Engineering and Locomotive Company Ltd popularly known as Telco was incorporated in 1945 to
manufacture steam locomotives In 1954 the company diversified into automobile manufacturing through a
collaboration with Daimler-Benz for the manufacture of commercial vehicles By the time the collaboration ended
in 1969 Telco had not only become an independent producer of medium commercial vehicles (MCVs) with
negligible import contentbut had developed the capability of designing and developing such vehicles The
Company progressively widened its product range to cover heavy commercial vehicles (HCVs) and light
commercial vehicles (LCVs) implementing one expansion program after another
To sustain the unrelenting pace of its growth Telco added machining press and assembly
33
capacities set up its own forge and foundries and virtually created the countryrsquos automobile ancillary industry
The Company even developed facilities for designing and manufacturing state-of-the-art machine tools material
handling equipment dies and fixtures To accommodate the Companyrsquos growing activity base a large modern
complex was set up at Pune in western India and a new plant became operational at Lucknow in the north of the
country
To provide a business focus for the Companyrsquos main activity areas Telco has created twobusiness unitsrsquo -
Automobiles and Construction Equipment ndash both of which have notched up record-breaking results
Telco today has a domestic market share of 68 in the MCVHCV segment 64 in the LCV segment and 32
in the multi-utility segment Apart from commercial vehicles which range from 1 ton to 35 tons GVW Telcorsquos
automobile products also include passenger vehicles and an extraordinarily popular multi-utility vehicle All these
products have been developed inhouse by the Companyrsquos own RampD Center This Center is equipped with the
latest computeraided design hardware and software enabling the company to respond quickly to changing
customer needs both in India and abroad
Telco has been exporting its products since 1969 and currently exports about a tenth of its
output Export markets include the Middle East Africa and Southeast Asia as well as
developed countries in Europe like France UK and Spain It is intended that exports should account for 20 of
the automobiles sold by the Company
Telcorsquos second line of business Construction Equipment has also grown rapidly and the
Company currently commands a 61 share in the excavator market and 90 in the crawler cranes market in
India The hydraulically operated construction equipment made by the company is in collaboration with Hitachi
34
Construction Machinery Limited of Japan There are ambitious plans for widening the range of excavators made
by the company and for adding new lines of construction equipment A recent addition to the excavator range is
Backhoe Loader
Telco is one of Indias largest private sector companies With a turnover of Rs 6637 billion it is the countrys
leading commercial vehicle manufacturer and the worldrsquos sixth largest automobile company
The widely successful Tata Indica which is Euro 1 and 2 compliant is the countryrsquos first
indigenously designed developed and manufactured passenger car The company also
makes several other passengers vehicles including the Safari the Sumo the Sierra the Tata Estate and the
Tatamobile pick-up
The companyrsquos products have received wide acceptance not only in India but also in markets in the Middle East
Asia Africa and Europe
Chapter 52 Areas of business
The company manufactures medium heavy and light commercial vehicles multi-utility
vehicles and passenger cars It also makes general and special purpose machines for
automotive applications at its machine tool division These include NCCNC horizontal and inline machining
centers flexible manufacturing systems CNC cylindrical grinding machines and robots for welding cutting
painting and other applications
In 1999 the companyrsquos revenues from its four manufacturing plants at three locations in India were Rs 6637
billion ($15735 million) In 1998 they were Rs 7026 billion ($1893 million) (The average exchange rate in
1999 was Rs 4218 to one US dollar)
35
In the year ended 31 March 2000 the companyrsquos total exports were worth about Rs 50553 crore against about
Rs 60078 crore in the previous year
Locations
The companyrsquos manufacturing plants in India are at Jamshedpur in Bihar Pimpri and
Chinchwad near Pune in Maharashtra and Lucknow in Uttar Pradesh A fifth manufacturing facility is being set
up at Dharwad in Karnataka
Collaborations
The Company has technical tie-ups with
bull The Institute of Development in Automotive Engineering SPA Italy for assistance in
small car body design and styling
bull Nachi Fujikoshi Corporation Japan for robots for welding painting and other
automotive applications
bull Le Moteur Moderne France for the development of diesel and petrol engines for
passenger cars and
bull Robert Bausch GmbH Germany for application work on the engine management
system for 4 PL petrol engines
36
Chapter 53 Tata Motors ndashSuccessful Car Indica
TELCO launched Indica when the TATA group was in red Telco chairman Ratan Tata said that the 1400 cc car
Indica would drive the company out of the red
Tata while talking to reporters at the IETF 99 in a videoconference from Mumbai said that the overwhelming
response of over 125 lakh initial bookings for the Indica had come as a surprise It seems we touched the
national chord somewhere as people responded to the fact that this is the first Indian car said Tata Indica is not
the end of the road for Telco when it comes to passenger cars It is just the beginning as there are more to come
said Tata adding that the company was working on another mid-size car after Indica
Telco had to produce 60000 cars a year to break-even The group created two
organizations within Telco one dealing with commercial vehicles and the other with passenger cars The
company under took a major restructuring exercise whereby the passenger car and commercial vehicles divisions
would function as two separate business units Telco had a strategy to go for exports after addressing the initial
requirements of the domestic market
Awards and Recognition
In May 2000 Tata Engineering and Locomotive Company Ltd (Telco) won a national award for successful
indigenous technology used in the Indica car project The award titled National award for successful
commercialization of indigenous technology by an industrial concern for indigenous development and
commercialization of Tata Indica car was presented by the minister for human resource development science and
technology and ocean development
Dr Murli Manohar Joshi
37
In November 1999 Telco was awarded the Department of scientific and industrial research
national award for indigenous design of the Tata Indica It was the first company in India to implement stringent
emission norms well ahead of the mandate dates
Promotions
The Indica advertising made interest for the car go into overdrive The campaign revolved around the premise that
the Indica would not just meet peoples expectations it would exceed them Every advertisement has a story to
tell
Pre launch Campaign
The Indica campaign began in the right earnest in December 1998 It was advertised as the launch of a car that
will spell doom for the small cars It was directly aimed at Maruti 800 The ad line used in the first campaign was
ldquoCar makers will suddenly remember all the thing they forgot to give yourdquo This hinted that Indica would have
more features than any of the existing small cars Indica used the catch lines like ldquo More car per Carrdquo ldquoMore
dreams per carrdquo to suggest that Indica will be bigger in size to the existing small cars yet be in the small car
category It competes with the mid size cars on size and give them a run for their money with its cheaper price
tag
At the launch of the car TELCO claimed that the people would never have to suffer from a small car again and
that the n end of the year (1998) would be the end of the small cars
Launch Campaign
The launch campaign of Indica focussed on the many advantages that it offered over other cars in the same
segment It promised the customers more than the current offerings Its first advertisement carried the following
catch line ldquo50cc moped 100cc bike 800cc car Time you asked for morerdquo
38
It then concentrated its efforts on criticizing the negative aspects of Maruti 800 and highlighted how Indica has
removed those very defects and presented a very sophisticated and modern car to the Indian customer It even
pointed out that the shape of Maruti was very unconventional and that people would prefer the shape of Indica to
Maruti 800 The advertisement read ldquo Box shaped bubble shaped wedge shaped But then Gentlemen prefer
curvesrdquo
The launch campaign also focussed on the roomy interiors of Indica a feature not offered by Maruti at that point
of time Also the expertise of TATA in diesel engines and fuel efficiency of these were the highlight of the launch
campaign of Tata Indica
Post Launch Campaigns
While the Launch campaign focussed on the features of Indica the post launch advertisements focussed on the
superior after sales service and longer warranty periods offered by Indica
Telco was the first company to offer an 18-month warranty period on engine parts The most famous line used
during this campaign was ldquoWe could go on and on about service or give you the one word summary TATArdquo
While their main adversary was the Maruti 800 Telco felt that it could also tap the mid size segment using the
selling point of space given by Indica They carried a campaign which said ldquoForget small cars we even make big
cars feel smallrdquo
It then went on to highlight the fact that Indica was Euro II compliant even before it was legally binding upon car
manufacturers to do so It also highlighted the concrete wall safety test that Indica withstands and tried to
showcase the car as a safe and strong car
39
Chapter 6 COST REDUCTION TECHNIQUES
IN TATA MOTORSrsquoS INDICA
40
Chapter 6 Tata Indica - The Making Of The Small Car
with objective of minimizing costs
The research provides an understanding of the issues concerning the supply chain management system at
Telco in regard to its small car Indica It outlines how Telco built the supply chain for the car by leveraging its
existing competencies and how it transformed itself from an integrated truck manufacturer to an automobile
integrator and from a product-centric company to competence- centric company The case discusses various
components of the supply chain and emphasises how Telco orchestrated them with the objective of minimizing
costs
ldquoTelcorsquos 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 comerdquo
- Business India March 22 1999
In the early 1990s Telcorsquos Chairman Ratan Tata (Tata) was flirting with the idea of developing a small
car By mid-1994 a rudimentary design was in place In 1995 Telco announced that it planned to build a car
which would be priced close to the Maruti 800 shaped like the Zen and spacious as an Ambassador
Producing the new small car ndash Indica ndash represented a different kind of challenge for Telco Should Tata succeed he
would change the face of Telco As a truck-maker Telco was so integrated that it even made it own castings and
forgings As an automaker it would have to focus on the value chain that stretched between raw materials and after-sales
41
service as well as assembling the parts into the complete automobile
For its new venture Telco outsourced 80 of the components (1200 of its 1500-plus parts) from 200-odd vendors To
develop the Indica Telco had to combine the learnings from its predecessors with its own unique supply chain
management strategies to ensure a sustainable low-cost platform
By learning to build and manage a supply chain it would set the ground for leveraging the capabilities of the
automotive component-manufacturers who already operated in its target markets In other words Telco planned
to use its skills as an integrator--bringing together products and services from both upstream and downstream
operations and packaging them for the customer under a brand name in its new venture
Globally a car could be built in 48 months with an investment of US $ 3 billion (Rs 1275 billion) Indica was
built in 31 months on a budget of Rs 17 billion This seemed to have been possible by focussing on the supply
chain
Chapter 61 THE OUTSOURCING STRATEGY
For Telco outsourcing seemed to be one of the most difficult aspects of producing the Indica Unlike global
automobile majors Ford Motors or General Motors which had a global vendor-base that could be replicated on
a smaller scale in India Telco had to create a vendor-base from scratch Moreover it did not have the expertise
either to design a car or to build an engine for it
Against this background Telco had to take its primary lsquomake-or-buyrsquo decisions for the key inputs-design
engine and transmission Telco decided to shop globally for the best deals and use its own expertise to make
42
whatever modifications were needed
(Refer Table I for the components outsourced by Telco)
TABLE I
OUTSOURCING THE COMPONENTS
Components Supplier
5 door hatchback IDEA Italy
Engine Institut Francais du Petrol
France
Assembly Line Nissanrsquos Plant Australia
Presses Mercedes Benz
Pistons and Piston rings India Pistons
Electrical components and fuel injection
systems Lucas-TVS
Steering systems Rane TRW Steering Systems
Clutch facings and rear (drum) brake linings Sundaram Brake Linings (SBL)
Seating Systems Tata-Johnson Controls
Radiators Tata-Toyo
Rear view mirrors Tata-Ficosa
Front and rear bumper dash-board inside
trims Tata-Auto Plastics
Air conditioning kits Subros Ltd
Wind screens and windows Asahi Glass
Fuel lines Imperial Auto
Differential assemblies Sona Steering
43
Sheet metal items JBM Tools
Source Business Today March 22 1999 and December 7 1999
Telco turned to the Italian company IDEA for the product-design It bought the engine from the Institut
Francais du Petrol of France and applied its engineering skills to adapt the engine requirements The transmission
was developed in-house at its Engineering Research Centre (ERC) at Pune Of the Rs 25 billion it spent on
designing the Indica the major share went in buying design tools and training its engineers in new skills Telcorsquos
engineers traveled regularly to the sites of its technology suppliers to receive training before the actual delivery
of the machines
Telco also outsourced its assembly line from Nissanrsquos plant in Australia for just Rs 900 million Telco
transplanted it at its factory at Chikli near Pune which was newly set up for Indica A new assembly line of the
same proportions would have cost at least Rs 4 billion Again of the 3 presses for the Indica only 1 was new
acquired for Rs 900 million while the other 2 were bought second-hand from Mercedes-Benz and modified to
suit the Indica
Telcorsquos engineers and the ERC did the application engineering programming installation and commissioning to
save around 45 of the technology costs The tooling for the car too was supplied internally by Telcorsquos machine
tool division To manage the supply chain better Telco kept the number of suppliers for Indica to just 200 as
compared to about 1000 for trucks Most of the parts were supplied by Telcorsquos traditional suppliersmdash TVS Rane
Group and Tata Auto Component Systems (Taco) who were single source suppliers Pressed parts assemblies
and drive shafts were sourced from single vendors
44
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
Chapter 1 Introduction
This research work related to customer research study titled ldquoEffectiveness Of Cost Reduction Techniques In The
Automobile Sectorrdquo throws a bucket of ice water in the face of some core business management tenets mdash plus a
number of keystone principles of the marketing distribution channel advertising and customer relationship
management (CRM) industries
Freed from the editing and selective hearing businesses often invokes to avoid hearing unpleasant
truths customers dish out an earful to companies about what they want what they dont want and what they
ignore mdash and how they really make purchase decisions
Businesses need to rethink their logic and develop new operating models based on customer centric behaviors and
valuations
India has became manufacturing Hub for automobile and textile industries Where FDI Has been done in these
sectors So its task for Operational Managers to optimize Cost with respect to Capital employed This may helped
companies to gain maximum Profit with minimum effort So Competitive Pricing can be done by companies to
competitor with their competitors This Paper aims to study effective methods for Direct Cost reduction
techniques that currently being implemented by Automobile
The auto industry is another beehive of innovation why so many MNCs were setting up car plants in
Tamil Nadu Because the state produces an inexhaustible supply of engineers maybe 200000 per year Many
4
come from private engineering colleges of poor quality But even if half the graduates are sub-standard that still
leaves 100000 competent innovative technicians Multinational car companies originally came to India for the
potentially huge domestic market To cut costs they had to use local components which initially were of low
quality But soon the interaction between component manufacturers and MNCs led to not just quality
improvement but innovations that nobody had dreamed of earlier Today Indian auto component companies are
doing computer-aided design and computer-aided manufacturing constantly coming up with new designs that
reduce cost and increase efficiency This design-savviness has made India a global player ex-porting over $1
billion worth of components last year And car exports have shot up to over 100000 in 2003-04 In the bad old
days of the licence-permit raj companies had no incentive to do RampD Getting a foreign collaboration approval
ensured monopoly profits for years But the new competition brought in by economic liberalisation in the 1990s
made RampD is an essential tool to compete and survive Tatarsquos Indica car is a prime example Bajaj Auto once
depended on technical know-how from Kawasaki and TVS on Suzuki Today both two-wheeler companies rely
overwhel-mingly on in-house RampD this alo-ne will enable them to withstand the new challenge from Honda
Other miracle Asian economies like Korea and Taiwan used labour-intensive manufacturing as their launching
pad taking advantage of their low wages Later they moved up the value chain India missed the bus of labour-
intensive exports but has now caught the jet plane of brain-power exports This began in computer software It
then spread to design-intensive manufacturing And it is now sparking an RampD revolution
After booming years of 2002 and 2003 the sales growth is slowing down and the prices are falling
Competition is becoming fiercer Pressure on profit margins and falling market shares force many local producers
to move towards exports to foreign markets
Up to 2010 India is going to become the second biggest automotive market in the world Forecasters predict the
country will be the fourth-largest producer of vehicles in the world by 2008 and may be the third-largest producer
5
by 2010 Indian consumers are demanding high quality cars so prices must be cut and costs minimized (source
Ernst amp Young)
In 2005 India produced nearly five times as many motor vehicles as in the early 1990s With annual production
nearing six million vehicles it is on pace to overtake Germany as the third largest national vehicle producer and
would trail only the United States and Japan in total vehicle output
Among the studys key findings are
To Study Cost Reduction techniques practiced in Manufacturing Industries(Automobile)
(a) Study of Effective Cost Reduction techniques in Supply Channel of distribution Network
(b) Study of Effective Cost Reduction techniques in Procurement of Raw Materials
(c) Study of Effective Cost Reduction techniques in Operational Management
The presence of a growing gap between customer expectations and company behaviors which creates opportunity
for some companies and increasing risk to others At a high level a companys degree of customer focus was the
most important purchase decision factor for customers and by a very wide margin
In terms of specific company behaviors mdash delivering customer-relevant quality products as expected was the
most desired factor very closely and unexpectedly followed by companies empowering their employees
6
Chapter 2 RESEARCH METHODOLOGY
7
8
Chapter 2 Research Methodology
CHAPTER 21 Primary Objective
The founder of the Japan-based Kaizen Institute Masaaki Imai defined Kaizen in his book Kaizen - The Key to
Japans Competitive Success as Kaizen means continuous improvement in the personal life home life social
life and working life Automobile companies applied Kaizen for continuous improvement in their operations
When Kaizen is applied to the workplace it means continuous improvement for - managers and workers Thus
Kaizen involves everyone in an organization to make improvements without large capital investments It can be
seen as a culture of continuous sustained improvement focusing on eliminating waste in all systems and
processes The Kaizen strategy begins and ends with people With Kaizen an involved leadership guides people
continuously to improve their abilities to meet high quality expectations low cost and on-time delivery which in
turn helps the organization gain a competitive edge
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
- Jay Wetzel Vice President and General Manager GM Technical Center commenting on the benefits
derived from CADCAMCAE tools in 200
To Study Operations of Automobile Company(Tata Motors)
(a) Study of Effective Cost Reduction techniques in Supply Channel of distribution Network
9
(b) Study of Effective Cost Reduction techniques in Procurement of Raw Materials
(c) Study of Effective Cost Reduction techniques in Operational Management
According to the Council of Logistics Management Supply Chain Management ldquothe process of planning
implementing and controlling efficient and cost effective flow of materials in-process inventory finished goods
and related information from point-of-order to point-of-consumption for the purpose of conforming to customer
requirements as efficiently as possiblerdquo The automobile industry has undergone significant structural and other
changes in the last decade or so In view of the present globalisation implementation of lean production and the
development of modularisation have changed the relationships between automobile assemblers (OEMs) and their
suppliers especially those in the first tierStiff competition among manufacturers will result in more mergers or
acquisitions The challenges automobile manufacturers and suppliers face include improving quality meeting cost
reduction targets and developing time to market
CHAPTER 22 Hypothesis
Is Automobile companies are following certain guidelines for Operations or not
Hypo 1- Network Planning ndash This is one of the most important issues for SCM
Determination of production requirements and inventory levels at the vendorrsquos facility for each product and
development of transportation flows between these facilities to the warehouses in a best possible way to reduce
total production inventory and ransportation costs with fulfilment of service level requirements
10
Hypo 2- IT and Decision Support Systemndash
This is another important challenge for SCM Today SCM is driven by the scope and opportunities appearing due
to abundance of data and the savings which can be achieved through efficient analysis of these data What data
should be transferred with its significance and most importantly what infrastructure is required internally and
between its partners is very important
Hypo 3- Supply chain integration and strategic partnering ndash
In SCM information sharing and operational planning are crucial for successfully integrated supply chain
CHAPTER 23 RESEARCH DESIGN
The study was conducted on part of Business Expansion plan of Automobile industry to expand their
existing Business On this part Exploratory Survey was conducted to know about Operatational Strategies of
automobile companies
This Market research is EXPLORATORY RESEARCH DESIGN Arguments in favors of EXPLORATORY
RESEARCH DESIGN is-
-It tests the Hypothesis examines the relationship and comes to a conclusion It test Hypothesis whether -
Is Automobile Companies using Network Planning
Is Automobile Companies using IT and Decision Support system
Is Automobile Companies Using Supply Chain Integration And Strategic Partnering
Findings and analysis are used for Decision making on account of Surveyed Data
11
In This type of Exploratory Research design involves Collection of Information from Secondary Data
In this Automobile Survey The whole study is Secondary data based oriented
a Secondary Data from Internet on Manufacturing Industries
b Journals on Cost reduction Techniques on manufacturing Industries
c Scholarly articles for brief about indian manufacturing industries
d Books on Operational management
e Review Articles on Supply Chain-Upstream and Down stream
f Study for Opeartion Research Techniques- Transportation Techniques
CHAPTER 24 Scope of the Study
Among the studys key findings are
Indian automobile and auto components industry is on a roll and there is an immense scope for management
for enhancing the supply chain of the sector India has become a favourable destination for foreign companies
to establish their facilities and form alliances with domestic companies Low cost of manufacturing
and conducive government support have been the major drivers for foreign companies investing in India
Indiarsquos large young population higher GDP growth and most importantly per capita passenger car penetration
is low at 85 car per thousand population which creates great opportunity for industry players to offer
an affordable four-wheeler alternative to the two-wheeler customers According to Planning Commission of India
Indian automobile industry is expected to grow at CAGR of 15 over the next five years The Indian economy is
12
now gaining momentum in the world of free trade and liberal movements of goods and services between
countries Therefore efficiency in supply will be critical for Indiarsquos automobile success
NEED FOR MATERIALS-SYSTEMS APPROACH
Improved materials and materials processing can and must play a large role in generating productive and effective
responses to the forces that will drive the automotive industry in the future However these forces often pull in
diverse directions when specific technological actions are considered For example aluminum alloys can be used
to reduce vehicle weight thereby reducing emissions and improving fuel economy but the added materials costs
currently offset these advantages for many applications As a result steel is still the major material of choice for
automobile construction today and will be difficult to supplant for the foreseeable future
Indiarsquos process-engineering potential can be utilised for redesigning of manufacturing
processes to make them more labour intensive and less capital intensive which will enable the MNCrsquos to reduce
their overall costs substantially For instance de-automating of the production processes which are applied in
Western countriesrsquo factories can reduce the overall manufacturing cost of some components by up to 20
In case of product engineering India has emerged as a leading destination in the world
Indiarsquos strength is in its design which helps in reducing costs For instance redesign of the Maruti Altorsquos steering
system has cut down its weight by 15 India with its skilled engineers can design a product very fast which in
turn reduces its development cost and lead times For example an Indian supplier took six months to design a
steering system for an automaker It took more than four years to develop similar system with suppliers in the
other low-cost countries Several automobile manufacturers have already set up their auto component facilities in
India
13
CHAPTER 25 Limitations
For Automobile Study Primary Data varies wrt Secondary Data on account of theoretical practices in field then
practical theories
With increasing disposable incomes and ever-growing burden on the public modes of transport the Indian
passenger car industry is heading for a bright future provided car manufacturers offer a world class cars that give
value for money use novel marketing concepts to entice potential buyers and offer good after-sales service
Demand for passenger cars in FY2002 is projected at approximately 970755 units while production is expected
to reach 1210000 units The year is likely to witness a spurt in exports due to excess supply and liberalization of
export policy by the government
Some of the future strategies that need to be addressed while entering in to Indian small car market include the
redesign of the vehicle to suit the Indian road conditions and to develop aggressive marketing strategy to counter
the cost advantage enjoyed by dominant players like Maruti due to high capacity utilization With growing
number of two wheeler owners opting for used cars vehicles with higher resale value and excellent service
network are likely to account for a major market share in the near future Moreover the introduction of Euro III
and Euro IV norms in the near future is likely to increase the scrapping rates of cars
Exports are likely to increase in the near future with the entry of international car giants like Daewoo Hyundai
Honda Siel GM and Ford that intend to use India as a manufacturing production base
14
Chapter 3 CRITICAL REVIEW OF
LITERATURE
15
CHAPTER 3 CRITICAL REVIEW OF LITERATURE
A just released customer research study titled Customers Say What Companies Dont Want to Hear throws a
bucket of ice water in the face of some core business management tenets mdash plus a number of keystone principles
of the marketing advertising and customer relationship management (CRM) industries
Greenberg adds Customers Say What Companies Dont Want To Hear proves a mission-critical strategic point
Businesses need to rethink their logic and develop new operating models based on customer centric behaviors and
valuations
Commenting on the findings Paul Greenberg author of the industry best-seller CRM at the Speed of Light
Customer Strategies for the 21st Century says Lee and Mangen have verified and amplified with hard data
the growing perception that the new breed of customer is here to stay and businesses need to react mdash or risk their
very existence
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 While a top manager should be the ideal customer he
should also be the greatest critic of his companys products If the CEO compromises or is only looking at the
margins then even if he is successful the companys success will be short lived
- Ratan Tata the Chairman Tata Group
16
Chapter 31 Automobile Market Overview
The domestic automobile market has been growing at 142 per cent CAGR over the past 4 years (2000-01 to
2004-05) while the auto components market has been growing at 192 per cent CAGR (2000-01 to 2003-04) The
industry (OEMs and suppliers together) contributed nearly 4 per cent to the countryrsquos GDP in 2003-04 The
automotive sector also offers significant employment opportunities It employs 045 million people directly and
around 10 million people indirectly
The industryrsquos capabilities in design engineering and manufacturing have been recognised the world over and
most automotive majors are looking to increasingly source auto components from India
India is emerging as one of the most attractive automotive markets in the world and is poised to become a key
sourcing base for auto components The table below captures the highlights of the sector in India that illustrates
its growing significanceSee Annexure A amp B
Indian Automobile Industry
Largest three wheeler market in the world
2nd largest two wheeler market in the world
4th largest passenger vehicle market in Asia
4th largest tractor market in the world
5th largest commercial vehicle market in the world
17
Chapter 32 Automobiles - Domestic Performance
The production and domestic sales of the automobiles in India have been growing strongly While production
increased from 48 million units in 2000-1 to 85 million units in 2004-05 (a CAGR of over 15 per cent) domestic
sales during the same period have gone up from 46 million to 79 million units (CAGR 142 per cent) A positive
trend in the domestic market is that the growth has not been driven by one or two segments but is consistent
across all key segments Two wheelers which constitute the majority of the industry volume have been growing
at a rate of 143 per cent three wheelers at a rate of 14 per cent and passenger vehicles at a rate of 113 per cent
Commercial vehicles have been growing at a higher rate of nearly 235 per cent although from a lower base
Since nearly all macro-economic indicators ndash GDP infrastructure population demographics interest rates etc ndash
are showing a favourable trend the domestic market for automobiles in India is expected to continue on its
growth trajectory
Chapter 33 Exports of automobiles from India
While the domestic sales of automobiles have been increasing at a significant rate exports have taken a quantum
leap in recent years The exports of automobiles from India have been growing at a CAGR of 39 per cent for the
past four years Exports growth has been spearheaded by the passenger vehicle segment which has grown at a
rate of 574 per cent
As a result the share of passenger vehicles in overall vehicle exports has increased from 18 per cent in 1998-99 to
26 per cent in 2004-05 Europe is the biggest importer of cars from the country while predominantly African
nations import buses and trucks The Association of South East Asian Nations (ASEAN) region is
the prime destination for Indian two wheelers
18
Chapter 34 REVIEW OF THESIS DONE
This is easy to understand because the per capita disposable income of the people has gone up remarkably Over
the last five years per capita personal disposable income has gone up by around 8 which has increased
purchasing capacity of the people in the country Other factors have also contributed to this high growth in Indian
automobile sector These include lowering age of first car users shorter replacement cycles rising duel income
families nw technology which is lowering cost of ownership low car penetration in the country and most
importantly growing steel production in the country In addition wide variety and easily available financing
options are also some of the major reasons for surge in demand for automobiles in India
Global automobile manufacturers are consistently streamlining their business process by outsourcing their non-
core activities to low-cost countries like IndiaGlobal automobile manufacturers are under tremendous pressures
to innovate their manufacturing process and at the same time to reduce costs In view of the present global
competitiveness they must not only develop new features to strengthen their customer requirements but also
follow the environmental and safety standards In addition the base price of a car is expected to remain same over
the next decade As a result companies are forced to source more components from low-cost countries like India
According to Mckinsey global outsourcing of automobile and auto components would reach US$375 billion by
2015 from US$65 billion in 2002 India has plenty of scope to garner this potential According to the management
consulting firm India has the potential to notch this opportunity and reach up to US$25 billion to emerge as
major sourcing destinations along with China Mexico and Thailand Besides low cost Indias auto components
industry has the major advantage of enormous skills in process product and capital engineeringmdashits excellent
manufacturing history and good education system
19
Human beings think our way is the best but at Toyota we are told we have to always change We believe there is
no perfect way so we continue to search The goal is to break the current condition through Kaizen
- Shoichiro Toyoda Chairman Toyota Motor Corporation in December 2000
When Kaizen is applied to the workplace it means continuous improvement for - managers and workers Thus
Kaizen involves everyone in an organization to make improvements without large capital investments It can be
seen as a culture of continuous sustained improvement focusing on eliminating waste in all systems and
processes The Kaizen strategy begins and ends with people With Kaizen an involved leadership guides people
continuously to improve their abilities to meet high quality expectations low cost and on-time delivery which in
turn helps the organization gain a competitive edge
The production divisions council which checked the plants objectives occasionally modifying them taking into
account the companys profit targets replaced the production allowance councils After approval these objectives
became the Kaizen norm of each plant in terms of production efficiency The method of determining the
production efficiency was altered to make it less constrained as the standard time was fixed by measuring the time
really required for workers operations whereas earlier standard time was fixed on the basis of the best standard
time marked in the past
20
Chapter 4 Industry Profile
21
CHAPTER 4 Industry Profile
The Trans-nationals were also serious about developing vendors in India India is
bound to become an important destination for the global auto industry It took the financial turmoil in South East
Asia and the slowdown in the Chinese auto market to reinforce the targeting to Indian Market The new interest in
the small car segment also reflects certain amount of bullishness on the part of auto manufacturers about India
Despite projected over capacities--and current losses carmakers continued to queue
up their investments for small car segment To day there are 10 global auto majorsmdashincluding the $13-billion
Suzuki Motor (Japan) the $65-billion Daewoo (South Korea) the $147-billion Ford (US) the $47-billion Fiat
(Italy) and the $168-billion General Motors (US) operating in Indian Market
Chapter 41 The Pre 1997 Automobile Market
As late as 1997 the auto market in India was clearly segmented At the entry level
were MULs 800-cc car--priced between Rs 210-lakh and Rs 245 lakh--and the Omni at Rs 175 lakh At the
next level were the 993-cc Zen--priced at Rs 370 lakh--and the 999-cc Fiat Uno (Rs 362 lakh) Then came the
1300-cc Esteem models--priced between Rs 469 lakh and Rs 595 lakh--the 1498-cc Cielo (Rs 620 lakh) and
the 1598-cc Opel Astra (Rs 752 lakh) followed by premium cars like Mercedes-Benzs E-220 (Rs 22 lakh)
Changing Lanes
Two events have upset the equations in the price-segmented car market Daewoo has
Changed the lanes with the Cielo which is now priced at Rs 490 lakh and competes with the Zens top-end
model (Rs 440 lakh) and the Esteems lower-end version (Rs 469 lakh) Ceilo has created a new value segment
where the price is not proportionate to the size Daewoos strategic response has very clearly redefined
differentiation from price or size to value
22
Hyundai Motors India a subsidiary of the $27-billion Hyundai of South Korea launched
its 999-cc Santro at the Auto Expo 1998 in Delhi The model comes in five variants with the non-air-
conditioned manual transmission model priced at Rs 280 lakh and the semiautomatic air-conditioned GLS
model priced between Rs 315 lakh and Rs 4 lakh ClearlyHyundais strategy is aimed at taking on the market
leader Maruti Udyog Limited But by pricing the deluxe model at Rs 4 lakh it is also bridging the gap between
the small and the middle car segments At present Marutirsquos Esteem LX is priced Rs 70000 more than the
Santro GLS while the Cielo is priced Rs 90000 more
The further entry of new players will only blur the segments New entrants will be
involved in price war to find a foothold in the Indian market Few of the examples include
TELCOs positioning of its 1400-cc Indica car--launched in November 1998 and priced close to Marutirsquos 800-cc
model as a small carand Honda sneaking its 1300-cc City into the segment vacated by the Cielo although it is
an accepted fact that pricing or positioning cannot be done in isolation In a crowded market that must depend on
the available strategic opportunities
By creating new segments companies can broaden their market base increase
capacity utilization levels pre-empt competitors market entry moves and importantly lower costs While Maruti
did that by launching three versions of the Esteem TELCO accomplished it by using a common platform for the
Sumo the Estate and the Sierra models Hyundai is also planning to come to the market with five variants in near
future At high volumes costs can be lowered by more than 20 per cent across variants due to experience curve
effect
Configuring the sticker price for a car in the market today is no more a functional
decision It has become a strategic decision as it identifies the key segmentrsquos response
23
elasticity to the market offer The two key inhibiting factors for the poor response to the auto war fare in Indian
Car Market are basically the low per capita income at $350 (Rs 14000 at current prices) and the high
manufacturing costs A large part of the population expected to graduate from two wheelers to four wheelers has
not responded as they were supposed to during this period of time The domestic auto giant Maruti Udyog
limited still forces the new players to benchmark themselves against its products which roll out from a
depreciated yet high-volume plant It enjoys the fast mover as well as the cost advantage with the higher capacity
utilisation that helps him to cut costs across as more cars you make the cheaper they get
With the worldrsquos second largest and fastest-growing population there is no doubt that Indiarsquos potential in both
economic and population terms and the effect it will have on the auto industry in the next years During the last
two years export from this sector has grown significantly owing mainly to the export of cars and two-three-
wheelers
The industry is characterized by a very high percentage (75) of production in the 23 wheeler sector India ranks
as the largest manufacturer of motorcycles and second largest in manufacturing of scooters in the world India
today is also the second largest manufacturer of tractors as well The industry has intense forward and backward
integration
The Indian automotive industry had experienced an extraordinary growth due to the improvement in the living
standards of the middle class and an increase in their disposable incomes Moreover the liberalization steps such
as relaxation of the foreign exchange and equity regulations reduction of tariffs on imports and refining the
banking policies initiated by the Government of India have played an equally important role in bringing the
Indian Automotive industry to great heights
It is estimated that the sale of passenger cars have tripled compared to their sale in the last five years Thus the
sale of cars has reached a figure of 1 million users and is expected to increase further Its also to be noted that the
24
demand for luxurious models SUVs and mini-cars for family owners have shot up largely due to increase in the
consumers buying capacity
The Indian automotive market
India country fact file 2005
Population 1 080 264388
Per Capita GDP (PPP) $3400
GDP Growth Rate 71
Total automotive sales 2005 1 439604 (889333)
Total automotive production 2005 1 643460 (1 000567)
Market growth 2005 vs 2004 70 (64)
Best sold model PC segment 2004 Maruti Alto (168)
Best sold model LCV segment 2004 Maruti Omni (213)
(passenger cars) (market share in segment)
Source httpwwwsegmentycomIndiahtm
Chapter 42 The Protected Indian Domestic Automobile Sector
MUL which set up shop in 1984 had 10 long years of relative protection to emerge as a formidable competitor
with high volume and a strong brand image in the mind of Indian customers When the industry was deregulated
in 1993 the cost barrier had become so high that new companies could not dare to look at the small car segment
25
Instead they settled for the mid-size segment where both volumes and margins were expected to be high
However a shakeout in the Indian mid-size car segment the slowdown in international auto sales pushed
transnational auto majors into India which have now turned the tide against MULThe present generation small
cars launched recently are more contemporary in terms of both design and technology while Marutis small-car
technology is at least a decade old
Keeping the future growth potential of Indian market in mind the auto majors are prepared to bear losses for the
next 10 years This will help them to gain a good market share the long run and provide breathing space to
counter the strategic moves of the leader Hence the narrowing price differential between the old and the new
small cars is the first call of the auto majors against Maruti in Indian Market If Maruti has to try and match the
features of new generation small cars it would mean additional costs On the contrary if Maruti decides to
hold its price line and add new features it could translate into losses or at least low profits But MUL can still
bank on at least two Suzuki models the proposed 657-cc Cervo C and the current 996-cc Wagon R to battle its
rivals in the future
Chapter 43 The Advent of the Auto Majors
Besides bracing up for losses in the initial years auto majors like Hyundai and Daewoo are banking on exports
too At the moment export may look unattractive because of the South Asian meltdown but in the long run low
production costs and component-manufacturing skills will make India- made cars competitive at global market
place Hence they are looking India as a production base to cater to the growing Asian market by way of
outsourcing from Indian manufacturing base However many a hurdles they have to cross on the journey to
profitability
26
The investments necessary for a large plant are simply huge Daewoo has so far sunk Rs 2700 crore in a
120-lakh-unit-a-year plant Unlike China which has restricted the number of companies India has followed an
open door policy for car manufacturers which has resulted in emergence of fragmented markets with distributed
capacity
An Original Equipment Manufacturer (OEM) needs a minimum economic size of 150 lakh cars a year to attract
vendor interest Daewoo was able to slash the Cielos price as it is cheaper to import components because of the
devaluation of the South Asian currencies The auto majors are lobbying with the government to ease the strict
indigenisation norms in the new automobile policy so that they can import the components from other countries
This will help them to cut the prices and to go head on the market leader particularly in a price responsive market
like that of small car segment
The other argument is that with the given import duty of 103 per cent on Completely Knocked-Down Kits
(CKDs) which is the same as that on Completely Built-up Units (CBUs) and 68 per cent on components the
imports will become costlier and compel companies to localize their manufacture The exposure to currency
fluctuations which crippled the four Japanese light commercial vehicle projects in the late 1980s is also minimal
when a company localizes component manufacture
Besides lean manufacturing techniques like Just-In-Time (JIT) are possible only when the supplier is located
close to the manufacturing unit If Maruti is a success story it is only because it indigenised 85 per cent of its
components within five years of going on-stream
Then theres the question of servicing the replacement market for spares Customers typically expect
components to be available locally and at competitive prices Imports cannot guarantee that but it is a
27
tremendous job to localize components at the right quality and price given the supplier problems in prevalent in
India
An Original Equipment Manufacturerrsquos competitive advantage lies in its marketing skills Having achieved price
and technology parity it can easily woo the consumer with attractive financing schemes and superior after-sales
service Nudged by the competition most auto players have a clutch of schemes to offer Daewoo Motors India
provides interestfree car finance Ford Motor and General Motors have slashed interest rates MULs joint
venture finance company Maruti Countrywide is offering loans at 1350 per cent when the prevailing lending
rate is 17 per cent and above
Chapter 44 The After Sales Service Scenario
After sales service for cars is as critical as showroom deals Maruti services its 2 million customers through an
army of 174 dealers spread across the country It will be impossible for a company to duplicate such
infrastructure particularly with investments in a metro-based showroom going up to Rs 4 crore Margins in
retailing are moving from actual sales to after sales service
The problem of price war is evident with Auto majors as much as with dealers In a bid to woo the customers
dealers particularly in non-prime locations are cutting their margins It will not be surprising if single-brand
dealers eventually turn into multi-brand sellers in future
Doing so will benefit all the three constituents in the marketing chain the OEM the dealer and the buyer The
carmaker can expand his reach without expensive investment the dealer can increase his revenue and the
customer gets a variety of models and brands under one roof in future
The local partner will be the loser in this fierce battle Without the means to make either matching equity or
technological investment the Indian collaborator will be driven off the road
28
It has already happened to the Rs 166-crore DCM which tied up with Daewoo Motors and can happen to both
the Rs 1258-crore Hindustan Motors (Partner General Motors) and the Rs 360657 crore Mahindra amp Mahindra
(Partner Ford Motor)
So they are reconciled to adopting a minority role or becoming auto component vendors This list includes
Siddharth Shrirams Rs 430-crore Siel (Partner Honda) the Kirloskars (Partner Toyota) and the Munjals of the
Rs 2000-crore Hero Group (Partner BMW) And the evidence is compelling eg Hindusthan Motors has a
passive role in its joint venture with General Motors although the Opel Astra is manufactured at HMs Halol plant
in Gujarat The same can be forecasted about Mahindra and Mahindrarsquos joint venture with Ford Motor What can
prolong the life of the joint venture is distribution muscle as it will take at least five years for a transnational auto
major to build a strong distribution channel in this country
By all accounts the auto industry is headed for a glut With an estimated demand for cars to touch 9 lakhs in
2001-2002 the installed capacity will rise to 16 lakhs So the current growth rate in Indian market is not
sustainable There will be at least two years of stagnant or declining demand before the resumption of the growth
trendThere is a projected demand of 1-lakh cars in the mid-segment alone by 2001-2002 And the car numbers
will add up to around 6 lakh a year That will engender a shakeout which is already afoot in the other Asian
markets For instance poor off -take and a consequent build-up of car inventories has led to a fierce price-war in
China
Chapter 45 Market Potential of Indian Automobile Segment
The demand for the small car will continue to drive growth for the next five years Of the total sales of Maruti in
2000-2001around 85 per cent were small cars The Esteems sales dropped in the same period where as the small
cars drove MULs sales So demand for small cars will leap only if certain conditions are fulfilled
29
Rise in the Income Levels In the US auto demand rises by 4 per cent for every 1 per cent increase in the real
Gross Domestic Product but this is irrelevant for India as only the top 150 per cent of the population
can afford a car The demand can shoot up if the income levels of the top 5 per cent continue to rise in future
Level Of Motorization It is stagnant at 170 cars per 1000 people for decades However in the post-liberalization
period the motorization level has leaped to 370 cars per 1000 Although it is still lower than the levels in the
developed markets motorization is bound to rise further in the coming years
Chapter 451 Vehicle Prices
Falling imports and excise duties coupled with competition will continue to boost demand and
the prices are likely to fall further at least in the short run
Chapter 452 Consumer Finance
Over 60 per cent of customers opt for consumer finance That figure could go up if interest
rates continue to fall
Chapter 453 Infrastructure
Traffic congestion and bad roads could deter potential buyers from going for small cars
particularly in small cities of India The future is not very heartening in this aspect
Chapter 454 Product Availability
As manufacturers shift their attention to the small car more and more people will be able to
afford it and demand will only rise in the future period of time
30
Chapter 46 The Future-Indian Automobile
There is a sharp contrast in the buying behavior of Indian Consumer compared to their western counter parts yet
there is no doubt that Indian car market is going to increasingly resemble the latter In the West the industry is
likely to be dominated by three or four major players With a likely demand of 11 lakh cars by 2006 there will be
a few niche players like BMW Mercedes-Benz and Audi with luxury cars to offer Unless car manufacturers
have a large range of vehicle to offer they will be unable to subsidize their costlier models
The market will consolidate to few segments The carmaker has to make diverse models based on diverse and
flexible platforms Products like the stripped-down economy car the sports utility vehicle or the van should be
built on the same platform For the price-sensitive customers there can be a no-frills version a loaded version for
the middle customer and luxury car manufacturers can target the high-end customers
The fortunes of the autoobile industry will continue to hinge on the large price sensitive customers who will
graduate to the higher end of the market over a period of time
Until then the small car will continue to drive demand and most of the car-manufacturers are
gearing up for this eventuality
31
Chapter 5 Company Profile
ldquoTata Motorsrdquo
32
CHAPTER 5 Company ProfileTata Motors
Tata Motors previously known as Tata Engineering and Locomotive Co Ltd (TELCO) is one of the largest
companies in the Tata Group and one of Indias largest business houses Tata Motors is Indias leading
commercial vehicle manufacturer and the third largest passenger car manufacturer The company is the sixth
largest truck manufacturer in the world Tata Motors recently received the Balanced Scorecard Collaborative Hall
of Fame Award for having achieved a significant turnaround of its overall performance A comprehensive quality
improvement and cost cutting initiative in September 2000 has played an important role in the companys
turnaround from a loss of Rs 500 crores in the year ended March 2001 to a profit of Rs 28 crores in the first
quarter of 2002-2003
Tata Engineering and Locomotive Company (TELCO)
Chapter 51 History amp Evolution
Tata Engineering and Locomotive Company Ltd popularly known as Telco was incorporated in 1945 to
manufacture steam locomotives In 1954 the company diversified into automobile manufacturing through a
collaboration with Daimler-Benz for the manufacture of commercial vehicles By the time the collaboration ended
in 1969 Telco had not only become an independent producer of medium commercial vehicles (MCVs) with
negligible import contentbut had developed the capability of designing and developing such vehicles The
Company progressively widened its product range to cover heavy commercial vehicles (HCVs) and light
commercial vehicles (LCVs) implementing one expansion program after another
To sustain the unrelenting pace of its growth Telco added machining press and assembly
33
capacities set up its own forge and foundries and virtually created the countryrsquos automobile ancillary industry
The Company even developed facilities for designing and manufacturing state-of-the-art machine tools material
handling equipment dies and fixtures To accommodate the Companyrsquos growing activity base a large modern
complex was set up at Pune in western India and a new plant became operational at Lucknow in the north of the
country
To provide a business focus for the Companyrsquos main activity areas Telco has created twobusiness unitsrsquo -
Automobiles and Construction Equipment ndash both of which have notched up record-breaking results
Telco today has a domestic market share of 68 in the MCVHCV segment 64 in the LCV segment and 32
in the multi-utility segment Apart from commercial vehicles which range from 1 ton to 35 tons GVW Telcorsquos
automobile products also include passenger vehicles and an extraordinarily popular multi-utility vehicle All these
products have been developed inhouse by the Companyrsquos own RampD Center This Center is equipped with the
latest computeraided design hardware and software enabling the company to respond quickly to changing
customer needs both in India and abroad
Telco has been exporting its products since 1969 and currently exports about a tenth of its
output Export markets include the Middle East Africa and Southeast Asia as well as
developed countries in Europe like France UK and Spain It is intended that exports should account for 20 of
the automobiles sold by the Company
Telcorsquos second line of business Construction Equipment has also grown rapidly and the
Company currently commands a 61 share in the excavator market and 90 in the crawler cranes market in
India The hydraulically operated construction equipment made by the company is in collaboration with Hitachi
34
Construction Machinery Limited of Japan There are ambitious plans for widening the range of excavators made
by the company and for adding new lines of construction equipment A recent addition to the excavator range is
Backhoe Loader
Telco is one of Indias largest private sector companies With a turnover of Rs 6637 billion it is the countrys
leading commercial vehicle manufacturer and the worldrsquos sixth largest automobile company
The widely successful Tata Indica which is Euro 1 and 2 compliant is the countryrsquos first
indigenously designed developed and manufactured passenger car The company also
makes several other passengers vehicles including the Safari the Sumo the Sierra the Tata Estate and the
Tatamobile pick-up
The companyrsquos products have received wide acceptance not only in India but also in markets in the Middle East
Asia Africa and Europe
Chapter 52 Areas of business
The company manufactures medium heavy and light commercial vehicles multi-utility
vehicles and passenger cars It also makes general and special purpose machines for
automotive applications at its machine tool division These include NCCNC horizontal and inline machining
centers flexible manufacturing systems CNC cylindrical grinding machines and robots for welding cutting
painting and other applications
In 1999 the companyrsquos revenues from its four manufacturing plants at three locations in India were Rs 6637
billion ($15735 million) In 1998 they were Rs 7026 billion ($1893 million) (The average exchange rate in
1999 was Rs 4218 to one US dollar)
35
In the year ended 31 March 2000 the companyrsquos total exports were worth about Rs 50553 crore against about
Rs 60078 crore in the previous year
Locations
The companyrsquos manufacturing plants in India are at Jamshedpur in Bihar Pimpri and
Chinchwad near Pune in Maharashtra and Lucknow in Uttar Pradesh A fifth manufacturing facility is being set
up at Dharwad in Karnataka
Collaborations
The Company has technical tie-ups with
bull The Institute of Development in Automotive Engineering SPA Italy for assistance in
small car body design and styling
bull Nachi Fujikoshi Corporation Japan for robots for welding painting and other
automotive applications
bull Le Moteur Moderne France for the development of diesel and petrol engines for
passenger cars and
bull Robert Bausch GmbH Germany for application work on the engine management
system for 4 PL petrol engines
36
Chapter 53 Tata Motors ndashSuccessful Car Indica
TELCO launched Indica when the TATA group was in red Telco chairman Ratan Tata said that the 1400 cc car
Indica would drive the company out of the red
Tata while talking to reporters at the IETF 99 in a videoconference from Mumbai said that the overwhelming
response of over 125 lakh initial bookings for the Indica had come as a surprise It seems we touched the
national chord somewhere as people responded to the fact that this is the first Indian car said Tata Indica is not
the end of the road for Telco when it comes to passenger cars It is just the beginning as there are more to come
said Tata adding that the company was working on another mid-size car after Indica
Telco had to produce 60000 cars a year to break-even The group created two
organizations within Telco one dealing with commercial vehicles and the other with passenger cars The
company under took a major restructuring exercise whereby the passenger car and commercial vehicles divisions
would function as two separate business units Telco had a strategy to go for exports after addressing the initial
requirements of the domestic market
Awards and Recognition
In May 2000 Tata Engineering and Locomotive Company Ltd (Telco) won a national award for successful
indigenous technology used in the Indica car project The award titled National award for successful
commercialization of indigenous technology by an industrial concern for indigenous development and
commercialization of Tata Indica car was presented by the minister for human resource development science and
technology and ocean development
Dr Murli Manohar Joshi
37
In November 1999 Telco was awarded the Department of scientific and industrial research
national award for indigenous design of the Tata Indica It was the first company in India to implement stringent
emission norms well ahead of the mandate dates
Promotions
The Indica advertising made interest for the car go into overdrive The campaign revolved around the premise that
the Indica would not just meet peoples expectations it would exceed them Every advertisement has a story to
tell
Pre launch Campaign
The Indica campaign began in the right earnest in December 1998 It was advertised as the launch of a car that
will spell doom for the small cars It was directly aimed at Maruti 800 The ad line used in the first campaign was
ldquoCar makers will suddenly remember all the thing they forgot to give yourdquo This hinted that Indica would have
more features than any of the existing small cars Indica used the catch lines like ldquo More car per Carrdquo ldquoMore
dreams per carrdquo to suggest that Indica will be bigger in size to the existing small cars yet be in the small car
category It competes with the mid size cars on size and give them a run for their money with its cheaper price
tag
At the launch of the car TELCO claimed that the people would never have to suffer from a small car again and
that the n end of the year (1998) would be the end of the small cars
Launch Campaign
The launch campaign of Indica focussed on the many advantages that it offered over other cars in the same
segment It promised the customers more than the current offerings Its first advertisement carried the following
catch line ldquo50cc moped 100cc bike 800cc car Time you asked for morerdquo
38
It then concentrated its efforts on criticizing the negative aspects of Maruti 800 and highlighted how Indica has
removed those very defects and presented a very sophisticated and modern car to the Indian customer It even
pointed out that the shape of Maruti was very unconventional and that people would prefer the shape of Indica to
Maruti 800 The advertisement read ldquo Box shaped bubble shaped wedge shaped But then Gentlemen prefer
curvesrdquo
The launch campaign also focussed on the roomy interiors of Indica a feature not offered by Maruti at that point
of time Also the expertise of TATA in diesel engines and fuel efficiency of these were the highlight of the launch
campaign of Tata Indica
Post Launch Campaigns
While the Launch campaign focussed on the features of Indica the post launch advertisements focussed on the
superior after sales service and longer warranty periods offered by Indica
Telco was the first company to offer an 18-month warranty period on engine parts The most famous line used
during this campaign was ldquoWe could go on and on about service or give you the one word summary TATArdquo
While their main adversary was the Maruti 800 Telco felt that it could also tap the mid size segment using the
selling point of space given by Indica They carried a campaign which said ldquoForget small cars we even make big
cars feel smallrdquo
It then went on to highlight the fact that Indica was Euro II compliant even before it was legally binding upon car
manufacturers to do so It also highlighted the concrete wall safety test that Indica withstands and tried to
showcase the car as a safe and strong car
39
Chapter 6 COST REDUCTION TECHNIQUES
IN TATA MOTORSrsquoS INDICA
40
Chapter 6 Tata Indica - The Making Of The Small Car
with objective of minimizing costs
The research provides an understanding of the issues concerning the supply chain management system at
Telco in regard to its small car Indica It outlines how Telco built the supply chain for the car by leveraging its
existing competencies and how it transformed itself from an integrated truck manufacturer to an automobile
integrator and from a product-centric company to competence- centric company The case discusses various
components of the supply chain and emphasises how Telco orchestrated them with the objective of minimizing
costs
ldquoTelcorsquos 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 comerdquo
- Business India March 22 1999
In the early 1990s Telcorsquos Chairman Ratan Tata (Tata) was flirting with the idea of developing a small
car By mid-1994 a rudimentary design was in place In 1995 Telco announced that it planned to build a car
which would be priced close to the Maruti 800 shaped like the Zen and spacious as an Ambassador
Producing the new small car ndash Indica ndash represented a different kind of challenge for Telco Should Tata succeed he
would change the face of Telco As a truck-maker Telco was so integrated that it even made it own castings and
forgings As an automaker it would have to focus on the value chain that stretched between raw materials and after-sales
41
service as well as assembling the parts into the complete automobile
For its new venture Telco outsourced 80 of the components (1200 of its 1500-plus parts) from 200-odd vendors To
develop the Indica Telco had to combine the learnings from its predecessors with its own unique supply chain
management strategies to ensure a sustainable low-cost platform
By learning to build and manage a supply chain it would set the ground for leveraging the capabilities of the
automotive component-manufacturers who already operated in its target markets In other words Telco planned
to use its skills as an integrator--bringing together products and services from both upstream and downstream
operations and packaging them for the customer under a brand name in its new venture
Globally a car could be built in 48 months with an investment of US $ 3 billion (Rs 1275 billion) Indica was
built in 31 months on a budget of Rs 17 billion This seemed to have been possible by focussing on the supply
chain
Chapter 61 THE OUTSOURCING STRATEGY
For Telco outsourcing seemed to be one of the most difficult aspects of producing the Indica Unlike global
automobile majors Ford Motors or General Motors which had a global vendor-base that could be replicated on
a smaller scale in India Telco had to create a vendor-base from scratch Moreover it did not have the expertise
either to design a car or to build an engine for it
Against this background Telco had to take its primary lsquomake-or-buyrsquo decisions for the key inputs-design
engine and transmission Telco decided to shop globally for the best deals and use its own expertise to make
42
whatever modifications were needed
(Refer Table I for the components outsourced by Telco)
TABLE I
OUTSOURCING THE COMPONENTS
Components Supplier
5 door hatchback IDEA Italy
Engine Institut Francais du Petrol
France
Assembly Line Nissanrsquos Plant Australia
Presses Mercedes Benz
Pistons and Piston rings India Pistons
Electrical components and fuel injection
systems Lucas-TVS
Steering systems Rane TRW Steering Systems
Clutch facings and rear (drum) brake linings Sundaram Brake Linings (SBL)
Seating Systems Tata-Johnson Controls
Radiators Tata-Toyo
Rear view mirrors Tata-Ficosa
Front and rear bumper dash-board inside
trims Tata-Auto Plastics
Air conditioning kits Subros Ltd
Wind screens and windows Asahi Glass
Fuel lines Imperial Auto
Differential assemblies Sona Steering
43
Sheet metal items JBM Tools
Source Business Today March 22 1999 and December 7 1999
Telco turned to the Italian company IDEA for the product-design It bought the engine from the Institut
Francais du Petrol of France and applied its engineering skills to adapt the engine requirements The transmission
was developed in-house at its Engineering Research Centre (ERC) at Pune Of the Rs 25 billion it spent on
designing the Indica the major share went in buying design tools and training its engineers in new skills Telcorsquos
engineers traveled regularly to the sites of its technology suppliers to receive training before the actual delivery
of the machines
Telco also outsourced its assembly line from Nissanrsquos plant in Australia for just Rs 900 million Telco
transplanted it at its factory at Chikli near Pune which was newly set up for Indica A new assembly line of the
same proportions would have cost at least Rs 4 billion Again of the 3 presses for the Indica only 1 was new
acquired for Rs 900 million while the other 2 were bought second-hand from Mercedes-Benz and modified to
suit the Indica
Telcorsquos engineers and the ERC did the application engineering programming installation and commissioning to
save around 45 of the technology costs The tooling for the car too was supplied internally by Telcorsquos machine
tool division To manage the supply chain better Telco kept the number of suppliers for Indica to just 200 as
compared to about 1000 for trucks Most of the parts were supplied by Telcorsquos traditional suppliersmdash TVS Rane
Group and Tata Auto Component Systems (Taco) who were single source suppliers Pressed parts assemblies
and drive shafts were sourced from single vendors
44
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
come from private engineering colleges of poor quality But even if half the graduates are sub-standard that still
leaves 100000 competent innovative technicians Multinational car companies originally came to India for the
potentially huge domestic market To cut costs they had to use local components which initially were of low
quality But soon the interaction between component manufacturers and MNCs led to not just quality
improvement but innovations that nobody had dreamed of earlier Today Indian auto component companies are
doing computer-aided design and computer-aided manufacturing constantly coming up with new designs that
reduce cost and increase efficiency This design-savviness has made India a global player ex-porting over $1
billion worth of components last year And car exports have shot up to over 100000 in 2003-04 In the bad old
days of the licence-permit raj companies had no incentive to do RampD Getting a foreign collaboration approval
ensured monopoly profits for years But the new competition brought in by economic liberalisation in the 1990s
made RampD is an essential tool to compete and survive Tatarsquos Indica car is a prime example Bajaj Auto once
depended on technical know-how from Kawasaki and TVS on Suzuki Today both two-wheeler companies rely
overwhel-mingly on in-house RampD this alo-ne will enable them to withstand the new challenge from Honda
Other miracle Asian economies like Korea and Taiwan used labour-intensive manufacturing as their launching
pad taking advantage of their low wages Later they moved up the value chain India missed the bus of labour-
intensive exports but has now caught the jet plane of brain-power exports This began in computer software It
then spread to design-intensive manufacturing And it is now sparking an RampD revolution
After booming years of 2002 and 2003 the sales growth is slowing down and the prices are falling
Competition is becoming fiercer Pressure on profit margins and falling market shares force many local producers
to move towards exports to foreign markets
Up to 2010 India is going to become the second biggest automotive market in the world Forecasters predict the
country will be the fourth-largest producer of vehicles in the world by 2008 and may be the third-largest producer
5
by 2010 Indian consumers are demanding high quality cars so prices must be cut and costs minimized (source
Ernst amp Young)
In 2005 India produced nearly five times as many motor vehicles as in the early 1990s With annual production
nearing six million vehicles it is on pace to overtake Germany as the third largest national vehicle producer and
would trail only the United States and Japan in total vehicle output
Among the studys key findings are
To Study Cost Reduction techniques practiced in Manufacturing Industries(Automobile)
(a) Study of Effective Cost Reduction techniques in Supply Channel of distribution Network
(b) Study of Effective Cost Reduction techniques in Procurement of Raw Materials
(c) Study of Effective Cost Reduction techniques in Operational Management
The presence of a growing gap between customer expectations and company behaviors which creates opportunity
for some companies and increasing risk to others At a high level a companys degree of customer focus was the
most important purchase decision factor for customers and by a very wide margin
In terms of specific company behaviors mdash delivering customer-relevant quality products as expected was the
most desired factor very closely and unexpectedly followed by companies empowering their employees
6
Chapter 2 RESEARCH METHODOLOGY
7
8
Chapter 2 Research Methodology
CHAPTER 21 Primary Objective
The founder of the Japan-based Kaizen Institute Masaaki Imai defined Kaizen in his book Kaizen - The Key to
Japans Competitive Success as Kaizen means continuous improvement in the personal life home life social
life and working life Automobile companies applied Kaizen for continuous improvement in their operations
When Kaizen is applied to the workplace it means continuous improvement for - managers and workers Thus
Kaizen involves everyone in an organization to make improvements without large capital investments It can be
seen as a culture of continuous sustained improvement focusing on eliminating waste in all systems and
processes The Kaizen strategy begins and ends with people With Kaizen an involved leadership guides people
continuously to improve their abilities to meet high quality expectations low cost and on-time delivery which in
turn helps the organization gain a competitive edge
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
- Jay Wetzel Vice President and General Manager GM Technical Center commenting on the benefits
derived from CADCAMCAE tools in 200
To Study Operations of Automobile Company(Tata Motors)
(a) Study of Effective Cost Reduction techniques in Supply Channel of distribution Network
9
(b) Study of Effective Cost Reduction techniques in Procurement of Raw Materials
(c) Study of Effective Cost Reduction techniques in Operational Management
According to the Council of Logistics Management Supply Chain Management ldquothe process of planning
implementing and controlling efficient and cost effective flow of materials in-process inventory finished goods
and related information from point-of-order to point-of-consumption for the purpose of conforming to customer
requirements as efficiently as possiblerdquo The automobile industry has undergone significant structural and other
changes in the last decade or so In view of the present globalisation implementation of lean production and the
development of modularisation have changed the relationships between automobile assemblers (OEMs) and their
suppliers especially those in the first tierStiff competition among manufacturers will result in more mergers or
acquisitions The challenges automobile manufacturers and suppliers face include improving quality meeting cost
reduction targets and developing time to market
CHAPTER 22 Hypothesis
Is Automobile companies are following certain guidelines for Operations or not
Hypo 1- Network Planning ndash This is one of the most important issues for SCM
Determination of production requirements and inventory levels at the vendorrsquos facility for each product and
development of transportation flows between these facilities to the warehouses in a best possible way to reduce
total production inventory and ransportation costs with fulfilment of service level requirements
10
Hypo 2- IT and Decision Support Systemndash
This is another important challenge for SCM Today SCM is driven by the scope and opportunities appearing due
to abundance of data and the savings which can be achieved through efficient analysis of these data What data
should be transferred with its significance and most importantly what infrastructure is required internally and
between its partners is very important
Hypo 3- Supply chain integration and strategic partnering ndash
In SCM information sharing and operational planning are crucial for successfully integrated supply chain
CHAPTER 23 RESEARCH DESIGN
The study was conducted on part of Business Expansion plan of Automobile industry to expand their
existing Business On this part Exploratory Survey was conducted to know about Operatational Strategies of
automobile companies
This Market research is EXPLORATORY RESEARCH DESIGN Arguments in favors of EXPLORATORY
RESEARCH DESIGN is-
-It tests the Hypothesis examines the relationship and comes to a conclusion It test Hypothesis whether -
Is Automobile Companies using Network Planning
Is Automobile Companies using IT and Decision Support system
Is Automobile Companies Using Supply Chain Integration And Strategic Partnering
Findings and analysis are used for Decision making on account of Surveyed Data
11
In This type of Exploratory Research design involves Collection of Information from Secondary Data
In this Automobile Survey The whole study is Secondary data based oriented
a Secondary Data from Internet on Manufacturing Industries
b Journals on Cost reduction Techniques on manufacturing Industries
c Scholarly articles for brief about indian manufacturing industries
d Books on Operational management
e Review Articles on Supply Chain-Upstream and Down stream
f Study for Opeartion Research Techniques- Transportation Techniques
CHAPTER 24 Scope of the Study
Among the studys key findings are
Indian automobile and auto components industry is on a roll and there is an immense scope for management
for enhancing the supply chain of the sector India has become a favourable destination for foreign companies
to establish their facilities and form alliances with domestic companies Low cost of manufacturing
and conducive government support have been the major drivers for foreign companies investing in India
Indiarsquos large young population higher GDP growth and most importantly per capita passenger car penetration
is low at 85 car per thousand population which creates great opportunity for industry players to offer
an affordable four-wheeler alternative to the two-wheeler customers According to Planning Commission of India
Indian automobile industry is expected to grow at CAGR of 15 over the next five years The Indian economy is
12
now gaining momentum in the world of free trade and liberal movements of goods and services between
countries Therefore efficiency in supply will be critical for Indiarsquos automobile success
NEED FOR MATERIALS-SYSTEMS APPROACH
Improved materials and materials processing can and must play a large role in generating productive and effective
responses to the forces that will drive the automotive industry in the future However these forces often pull in
diverse directions when specific technological actions are considered For example aluminum alloys can be used
to reduce vehicle weight thereby reducing emissions and improving fuel economy but the added materials costs
currently offset these advantages for many applications As a result steel is still the major material of choice for
automobile construction today and will be difficult to supplant for the foreseeable future
Indiarsquos process-engineering potential can be utilised for redesigning of manufacturing
processes to make them more labour intensive and less capital intensive which will enable the MNCrsquos to reduce
their overall costs substantially For instance de-automating of the production processes which are applied in
Western countriesrsquo factories can reduce the overall manufacturing cost of some components by up to 20
In case of product engineering India has emerged as a leading destination in the world
Indiarsquos strength is in its design which helps in reducing costs For instance redesign of the Maruti Altorsquos steering
system has cut down its weight by 15 India with its skilled engineers can design a product very fast which in
turn reduces its development cost and lead times For example an Indian supplier took six months to design a
steering system for an automaker It took more than four years to develop similar system with suppliers in the
other low-cost countries Several automobile manufacturers have already set up their auto component facilities in
India
13
CHAPTER 25 Limitations
For Automobile Study Primary Data varies wrt Secondary Data on account of theoretical practices in field then
practical theories
With increasing disposable incomes and ever-growing burden on the public modes of transport the Indian
passenger car industry is heading for a bright future provided car manufacturers offer a world class cars that give
value for money use novel marketing concepts to entice potential buyers and offer good after-sales service
Demand for passenger cars in FY2002 is projected at approximately 970755 units while production is expected
to reach 1210000 units The year is likely to witness a spurt in exports due to excess supply and liberalization of
export policy by the government
Some of the future strategies that need to be addressed while entering in to Indian small car market include the
redesign of the vehicle to suit the Indian road conditions and to develop aggressive marketing strategy to counter
the cost advantage enjoyed by dominant players like Maruti due to high capacity utilization With growing
number of two wheeler owners opting for used cars vehicles with higher resale value and excellent service
network are likely to account for a major market share in the near future Moreover the introduction of Euro III
and Euro IV norms in the near future is likely to increase the scrapping rates of cars
Exports are likely to increase in the near future with the entry of international car giants like Daewoo Hyundai
Honda Siel GM and Ford that intend to use India as a manufacturing production base
14
Chapter 3 CRITICAL REVIEW OF
LITERATURE
15
CHAPTER 3 CRITICAL REVIEW OF LITERATURE
A just released customer research study titled Customers Say What Companies Dont Want to Hear throws a
bucket of ice water in the face of some core business management tenets mdash plus a number of keystone principles
of the marketing advertising and customer relationship management (CRM) industries
Greenberg adds Customers Say What Companies Dont Want To Hear proves a mission-critical strategic point
Businesses need to rethink their logic and develop new operating models based on customer centric behaviors and
valuations
Commenting on the findings Paul Greenberg author of the industry best-seller CRM at the Speed of Light
Customer Strategies for the 21st Century says Lee and Mangen have verified and amplified with hard data
the growing perception that the new breed of customer is here to stay and businesses need to react mdash or risk their
very existence
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 While a top manager should be the ideal customer he
should also be the greatest critic of his companys products If the CEO compromises or is only looking at the
margins then even if he is successful the companys success will be short lived
- Ratan Tata the Chairman Tata Group
16
Chapter 31 Automobile Market Overview
The domestic automobile market has been growing at 142 per cent CAGR over the past 4 years (2000-01 to
2004-05) while the auto components market has been growing at 192 per cent CAGR (2000-01 to 2003-04) The
industry (OEMs and suppliers together) contributed nearly 4 per cent to the countryrsquos GDP in 2003-04 The
automotive sector also offers significant employment opportunities It employs 045 million people directly and
around 10 million people indirectly
The industryrsquos capabilities in design engineering and manufacturing have been recognised the world over and
most automotive majors are looking to increasingly source auto components from India
India is emerging as one of the most attractive automotive markets in the world and is poised to become a key
sourcing base for auto components The table below captures the highlights of the sector in India that illustrates
its growing significanceSee Annexure A amp B
Indian Automobile Industry
Largest three wheeler market in the world
2nd largest two wheeler market in the world
4th largest passenger vehicle market in Asia
4th largest tractor market in the world
5th largest commercial vehicle market in the world
17
Chapter 32 Automobiles - Domestic Performance
The production and domestic sales of the automobiles in India have been growing strongly While production
increased from 48 million units in 2000-1 to 85 million units in 2004-05 (a CAGR of over 15 per cent) domestic
sales during the same period have gone up from 46 million to 79 million units (CAGR 142 per cent) A positive
trend in the domestic market is that the growth has not been driven by one or two segments but is consistent
across all key segments Two wheelers which constitute the majority of the industry volume have been growing
at a rate of 143 per cent three wheelers at a rate of 14 per cent and passenger vehicles at a rate of 113 per cent
Commercial vehicles have been growing at a higher rate of nearly 235 per cent although from a lower base
Since nearly all macro-economic indicators ndash GDP infrastructure population demographics interest rates etc ndash
are showing a favourable trend the domestic market for automobiles in India is expected to continue on its
growth trajectory
Chapter 33 Exports of automobiles from India
While the domestic sales of automobiles have been increasing at a significant rate exports have taken a quantum
leap in recent years The exports of automobiles from India have been growing at a CAGR of 39 per cent for the
past four years Exports growth has been spearheaded by the passenger vehicle segment which has grown at a
rate of 574 per cent
As a result the share of passenger vehicles in overall vehicle exports has increased from 18 per cent in 1998-99 to
26 per cent in 2004-05 Europe is the biggest importer of cars from the country while predominantly African
nations import buses and trucks The Association of South East Asian Nations (ASEAN) region is
the prime destination for Indian two wheelers
18
Chapter 34 REVIEW OF THESIS DONE
This is easy to understand because the per capita disposable income of the people has gone up remarkably Over
the last five years per capita personal disposable income has gone up by around 8 which has increased
purchasing capacity of the people in the country Other factors have also contributed to this high growth in Indian
automobile sector These include lowering age of first car users shorter replacement cycles rising duel income
families nw technology which is lowering cost of ownership low car penetration in the country and most
importantly growing steel production in the country In addition wide variety and easily available financing
options are also some of the major reasons for surge in demand for automobiles in India
Global automobile manufacturers are consistently streamlining their business process by outsourcing their non-
core activities to low-cost countries like IndiaGlobal automobile manufacturers are under tremendous pressures
to innovate their manufacturing process and at the same time to reduce costs In view of the present global
competitiveness they must not only develop new features to strengthen their customer requirements but also
follow the environmental and safety standards In addition the base price of a car is expected to remain same over
the next decade As a result companies are forced to source more components from low-cost countries like India
According to Mckinsey global outsourcing of automobile and auto components would reach US$375 billion by
2015 from US$65 billion in 2002 India has plenty of scope to garner this potential According to the management
consulting firm India has the potential to notch this opportunity and reach up to US$25 billion to emerge as
major sourcing destinations along with China Mexico and Thailand Besides low cost Indias auto components
industry has the major advantage of enormous skills in process product and capital engineeringmdashits excellent
manufacturing history and good education system
19
Human beings think our way is the best but at Toyota we are told we have to always change We believe there is
no perfect way so we continue to search The goal is to break the current condition through Kaizen
- Shoichiro Toyoda Chairman Toyota Motor Corporation in December 2000
When Kaizen is applied to the workplace it means continuous improvement for - managers and workers Thus
Kaizen involves everyone in an organization to make improvements without large capital investments It can be
seen as a culture of continuous sustained improvement focusing on eliminating waste in all systems and
processes The Kaizen strategy begins and ends with people With Kaizen an involved leadership guides people
continuously to improve their abilities to meet high quality expectations low cost and on-time delivery which in
turn helps the organization gain a competitive edge
The production divisions council which checked the plants objectives occasionally modifying them taking into
account the companys profit targets replaced the production allowance councils After approval these objectives
became the Kaizen norm of each plant in terms of production efficiency The method of determining the
production efficiency was altered to make it less constrained as the standard time was fixed by measuring the time
really required for workers operations whereas earlier standard time was fixed on the basis of the best standard
time marked in the past
20
Chapter 4 Industry Profile
21
CHAPTER 4 Industry Profile
The Trans-nationals were also serious about developing vendors in India India is
bound to become an important destination for the global auto industry It took the financial turmoil in South East
Asia and the slowdown in the Chinese auto market to reinforce the targeting to Indian Market The new interest in
the small car segment also reflects certain amount of bullishness on the part of auto manufacturers about India
Despite projected over capacities--and current losses carmakers continued to queue
up their investments for small car segment To day there are 10 global auto majorsmdashincluding the $13-billion
Suzuki Motor (Japan) the $65-billion Daewoo (South Korea) the $147-billion Ford (US) the $47-billion Fiat
(Italy) and the $168-billion General Motors (US) operating in Indian Market
Chapter 41 The Pre 1997 Automobile Market
As late as 1997 the auto market in India was clearly segmented At the entry level
were MULs 800-cc car--priced between Rs 210-lakh and Rs 245 lakh--and the Omni at Rs 175 lakh At the
next level were the 993-cc Zen--priced at Rs 370 lakh--and the 999-cc Fiat Uno (Rs 362 lakh) Then came the
1300-cc Esteem models--priced between Rs 469 lakh and Rs 595 lakh--the 1498-cc Cielo (Rs 620 lakh) and
the 1598-cc Opel Astra (Rs 752 lakh) followed by premium cars like Mercedes-Benzs E-220 (Rs 22 lakh)
Changing Lanes
Two events have upset the equations in the price-segmented car market Daewoo has
Changed the lanes with the Cielo which is now priced at Rs 490 lakh and competes with the Zens top-end
model (Rs 440 lakh) and the Esteems lower-end version (Rs 469 lakh) Ceilo has created a new value segment
where the price is not proportionate to the size Daewoos strategic response has very clearly redefined
differentiation from price or size to value
22
Hyundai Motors India a subsidiary of the $27-billion Hyundai of South Korea launched
its 999-cc Santro at the Auto Expo 1998 in Delhi The model comes in five variants with the non-air-
conditioned manual transmission model priced at Rs 280 lakh and the semiautomatic air-conditioned GLS
model priced between Rs 315 lakh and Rs 4 lakh ClearlyHyundais strategy is aimed at taking on the market
leader Maruti Udyog Limited But by pricing the deluxe model at Rs 4 lakh it is also bridging the gap between
the small and the middle car segments At present Marutirsquos Esteem LX is priced Rs 70000 more than the
Santro GLS while the Cielo is priced Rs 90000 more
The further entry of new players will only blur the segments New entrants will be
involved in price war to find a foothold in the Indian market Few of the examples include
TELCOs positioning of its 1400-cc Indica car--launched in November 1998 and priced close to Marutirsquos 800-cc
model as a small carand Honda sneaking its 1300-cc City into the segment vacated by the Cielo although it is
an accepted fact that pricing or positioning cannot be done in isolation In a crowded market that must depend on
the available strategic opportunities
By creating new segments companies can broaden their market base increase
capacity utilization levels pre-empt competitors market entry moves and importantly lower costs While Maruti
did that by launching three versions of the Esteem TELCO accomplished it by using a common platform for the
Sumo the Estate and the Sierra models Hyundai is also planning to come to the market with five variants in near
future At high volumes costs can be lowered by more than 20 per cent across variants due to experience curve
effect
Configuring the sticker price for a car in the market today is no more a functional
decision It has become a strategic decision as it identifies the key segmentrsquos response
23
elasticity to the market offer The two key inhibiting factors for the poor response to the auto war fare in Indian
Car Market are basically the low per capita income at $350 (Rs 14000 at current prices) and the high
manufacturing costs A large part of the population expected to graduate from two wheelers to four wheelers has
not responded as they were supposed to during this period of time The domestic auto giant Maruti Udyog
limited still forces the new players to benchmark themselves against its products which roll out from a
depreciated yet high-volume plant It enjoys the fast mover as well as the cost advantage with the higher capacity
utilisation that helps him to cut costs across as more cars you make the cheaper they get
With the worldrsquos second largest and fastest-growing population there is no doubt that Indiarsquos potential in both
economic and population terms and the effect it will have on the auto industry in the next years During the last
two years export from this sector has grown significantly owing mainly to the export of cars and two-three-
wheelers
The industry is characterized by a very high percentage (75) of production in the 23 wheeler sector India ranks
as the largest manufacturer of motorcycles and second largest in manufacturing of scooters in the world India
today is also the second largest manufacturer of tractors as well The industry has intense forward and backward
integration
The Indian automotive industry had experienced an extraordinary growth due to the improvement in the living
standards of the middle class and an increase in their disposable incomes Moreover the liberalization steps such
as relaxation of the foreign exchange and equity regulations reduction of tariffs on imports and refining the
banking policies initiated by the Government of India have played an equally important role in bringing the
Indian Automotive industry to great heights
It is estimated that the sale of passenger cars have tripled compared to their sale in the last five years Thus the
sale of cars has reached a figure of 1 million users and is expected to increase further Its also to be noted that the
24
demand for luxurious models SUVs and mini-cars for family owners have shot up largely due to increase in the
consumers buying capacity
The Indian automotive market
India country fact file 2005
Population 1 080 264388
Per Capita GDP (PPP) $3400
GDP Growth Rate 71
Total automotive sales 2005 1 439604 (889333)
Total automotive production 2005 1 643460 (1 000567)
Market growth 2005 vs 2004 70 (64)
Best sold model PC segment 2004 Maruti Alto (168)
Best sold model LCV segment 2004 Maruti Omni (213)
(passenger cars) (market share in segment)
Source httpwwwsegmentycomIndiahtm
Chapter 42 The Protected Indian Domestic Automobile Sector
MUL which set up shop in 1984 had 10 long years of relative protection to emerge as a formidable competitor
with high volume and a strong brand image in the mind of Indian customers When the industry was deregulated
in 1993 the cost barrier had become so high that new companies could not dare to look at the small car segment
25
Instead they settled for the mid-size segment where both volumes and margins were expected to be high
However a shakeout in the Indian mid-size car segment the slowdown in international auto sales pushed
transnational auto majors into India which have now turned the tide against MULThe present generation small
cars launched recently are more contemporary in terms of both design and technology while Marutis small-car
technology is at least a decade old
Keeping the future growth potential of Indian market in mind the auto majors are prepared to bear losses for the
next 10 years This will help them to gain a good market share the long run and provide breathing space to
counter the strategic moves of the leader Hence the narrowing price differential between the old and the new
small cars is the first call of the auto majors against Maruti in Indian Market If Maruti has to try and match the
features of new generation small cars it would mean additional costs On the contrary if Maruti decides to
hold its price line and add new features it could translate into losses or at least low profits But MUL can still
bank on at least two Suzuki models the proposed 657-cc Cervo C and the current 996-cc Wagon R to battle its
rivals in the future
Chapter 43 The Advent of the Auto Majors
Besides bracing up for losses in the initial years auto majors like Hyundai and Daewoo are banking on exports
too At the moment export may look unattractive because of the South Asian meltdown but in the long run low
production costs and component-manufacturing skills will make India- made cars competitive at global market
place Hence they are looking India as a production base to cater to the growing Asian market by way of
outsourcing from Indian manufacturing base However many a hurdles they have to cross on the journey to
profitability
26
The investments necessary for a large plant are simply huge Daewoo has so far sunk Rs 2700 crore in a
120-lakh-unit-a-year plant Unlike China which has restricted the number of companies India has followed an
open door policy for car manufacturers which has resulted in emergence of fragmented markets with distributed
capacity
An Original Equipment Manufacturer (OEM) needs a minimum economic size of 150 lakh cars a year to attract
vendor interest Daewoo was able to slash the Cielos price as it is cheaper to import components because of the
devaluation of the South Asian currencies The auto majors are lobbying with the government to ease the strict
indigenisation norms in the new automobile policy so that they can import the components from other countries
This will help them to cut the prices and to go head on the market leader particularly in a price responsive market
like that of small car segment
The other argument is that with the given import duty of 103 per cent on Completely Knocked-Down Kits
(CKDs) which is the same as that on Completely Built-up Units (CBUs) and 68 per cent on components the
imports will become costlier and compel companies to localize their manufacture The exposure to currency
fluctuations which crippled the four Japanese light commercial vehicle projects in the late 1980s is also minimal
when a company localizes component manufacture
Besides lean manufacturing techniques like Just-In-Time (JIT) are possible only when the supplier is located
close to the manufacturing unit If Maruti is a success story it is only because it indigenised 85 per cent of its
components within five years of going on-stream
Then theres the question of servicing the replacement market for spares Customers typically expect
components to be available locally and at competitive prices Imports cannot guarantee that but it is a
27
tremendous job to localize components at the right quality and price given the supplier problems in prevalent in
India
An Original Equipment Manufacturerrsquos competitive advantage lies in its marketing skills Having achieved price
and technology parity it can easily woo the consumer with attractive financing schemes and superior after-sales
service Nudged by the competition most auto players have a clutch of schemes to offer Daewoo Motors India
provides interestfree car finance Ford Motor and General Motors have slashed interest rates MULs joint
venture finance company Maruti Countrywide is offering loans at 1350 per cent when the prevailing lending
rate is 17 per cent and above
Chapter 44 The After Sales Service Scenario
After sales service for cars is as critical as showroom deals Maruti services its 2 million customers through an
army of 174 dealers spread across the country It will be impossible for a company to duplicate such
infrastructure particularly with investments in a metro-based showroom going up to Rs 4 crore Margins in
retailing are moving from actual sales to after sales service
The problem of price war is evident with Auto majors as much as with dealers In a bid to woo the customers
dealers particularly in non-prime locations are cutting their margins It will not be surprising if single-brand
dealers eventually turn into multi-brand sellers in future
Doing so will benefit all the three constituents in the marketing chain the OEM the dealer and the buyer The
carmaker can expand his reach without expensive investment the dealer can increase his revenue and the
customer gets a variety of models and brands under one roof in future
The local partner will be the loser in this fierce battle Without the means to make either matching equity or
technological investment the Indian collaborator will be driven off the road
28
It has already happened to the Rs 166-crore DCM which tied up with Daewoo Motors and can happen to both
the Rs 1258-crore Hindustan Motors (Partner General Motors) and the Rs 360657 crore Mahindra amp Mahindra
(Partner Ford Motor)
So they are reconciled to adopting a minority role or becoming auto component vendors This list includes
Siddharth Shrirams Rs 430-crore Siel (Partner Honda) the Kirloskars (Partner Toyota) and the Munjals of the
Rs 2000-crore Hero Group (Partner BMW) And the evidence is compelling eg Hindusthan Motors has a
passive role in its joint venture with General Motors although the Opel Astra is manufactured at HMs Halol plant
in Gujarat The same can be forecasted about Mahindra and Mahindrarsquos joint venture with Ford Motor What can
prolong the life of the joint venture is distribution muscle as it will take at least five years for a transnational auto
major to build a strong distribution channel in this country
By all accounts the auto industry is headed for a glut With an estimated demand for cars to touch 9 lakhs in
2001-2002 the installed capacity will rise to 16 lakhs So the current growth rate in Indian market is not
sustainable There will be at least two years of stagnant or declining demand before the resumption of the growth
trendThere is a projected demand of 1-lakh cars in the mid-segment alone by 2001-2002 And the car numbers
will add up to around 6 lakh a year That will engender a shakeout which is already afoot in the other Asian
markets For instance poor off -take and a consequent build-up of car inventories has led to a fierce price-war in
China
Chapter 45 Market Potential of Indian Automobile Segment
The demand for the small car will continue to drive growth for the next five years Of the total sales of Maruti in
2000-2001around 85 per cent were small cars The Esteems sales dropped in the same period where as the small
cars drove MULs sales So demand for small cars will leap only if certain conditions are fulfilled
29
Rise in the Income Levels In the US auto demand rises by 4 per cent for every 1 per cent increase in the real
Gross Domestic Product but this is irrelevant for India as only the top 150 per cent of the population
can afford a car The demand can shoot up if the income levels of the top 5 per cent continue to rise in future
Level Of Motorization It is stagnant at 170 cars per 1000 people for decades However in the post-liberalization
period the motorization level has leaped to 370 cars per 1000 Although it is still lower than the levels in the
developed markets motorization is bound to rise further in the coming years
Chapter 451 Vehicle Prices
Falling imports and excise duties coupled with competition will continue to boost demand and
the prices are likely to fall further at least in the short run
Chapter 452 Consumer Finance
Over 60 per cent of customers opt for consumer finance That figure could go up if interest
rates continue to fall
Chapter 453 Infrastructure
Traffic congestion and bad roads could deter potential buyers from going for small cars
particularly in small cities of India The future is not very heartening in this aspect
Chapter 454 Product Availability
As manufacturers shift their attention to the small car more and more people will be able to
afford it and demand will only rise in the future period of time
30
Chapter 46 The Future-Indian Automobile
There is a sharp contrast in the buying behavior of Indian Consumer compared to their western counter parts yet
there is no doubt that Indian car market is going to increasingly resemble the latter In the West the industry is
likely to be dominated by three or four major players With a likely demand of 11 lakh cars by 2006 there will be
a few niche players like BMW Mercedes-Benz and Audi with luxury cars to offer Unless car manufacturers
have a large range of vehicle to offer they will be unable to subsidize their costlier models
The market will consolidate to few segments The carmaker has to make diverse models based on diverse and
flexible platforms Products like the stripped-down economy car the sports utility vehicle or the van should be
built on the same platform For the price-sensitive customers there can be a no-frills version a loaded version for
the middle customer and luxury car manufacturers can target the high-end customers
The fortunes of the autoobile industry will continue to hinge on the large price sensitive customers who will
graduate to the higher end of the market over a period of time
Until then the small car will continue to drive demand and most of the car-manufacturers are
gearing up for this eventuality
31
Chapter 5 Company Profile
ldquoTata Motorsrdquo
32
CHAPTER 5 Company ProfileTata Motors
Tata Motors previously known as Tata Engineering and Locomotive Co Ltd (TELCO) is one of the largest
companies in the Tata Group and one of Indias largest business houses Tata Motors is Indias leading
commercial vehicle manufacturer and the third largest passenger car manufacturer The company is the sixth
largest truck manufacturer in the world Tata Motors recently received the Balanced Scorecard Collaborative Hall
of Fame Award for having achieved a significant turnaround of its overall performance A comprehensive quality
improvement and cost cutting initiative in September 2000 has played an important role in the companys
turnaround from a loss of Rs 500 crores in the year ended March 2001 to a profit of Rs 28 crores in the first
quarter of 2002-2003
Tata Engineering and Locomotive Company (TELCO)
Chapter 51 History amp Evolution
Tata Engineering and Locomotive Company Ltd popularly known as Telco was incorporated in 1945 to
manufacture steam locomotives In 1954 the company diversified into automobile manufacturing through a
collaboration with Daimler-Benz for the manufacture of commercial vehicles By the time the collaboration ended
in 1969 Telco had not only become an independent producer of medium commercial vehicles (MCVs) with
negligible import contentbut had developed the capability of designing and developing such vehicles The
Company progressively widened its product range to cover heavy commercial vehicles (HCVs) and light
commercial vehicles (LCVs) implementing one expansion program after another
To sustain the unrelenting pace of its growth Telco added machining press and assembly
33
capacities set up its own forge and foundries and virtually created the countryrsquos automobile ancillary industry
The Company even developed facilities for designing and manufacturing state-of-the-art machine tools material
handling equipment dies and fixtures To accommodate the Companyrsquos growing activity base a large modern
complex was set up at Pune in western India and a new plant became operational at Lucknow in the north of the
country
To provide a business focus for the Companyrsquos main activity areas Telco has created twobusiness unitsrsquo -
Automobiles and Construction Equipment ndash both of which have notched up record-breaking results
Telco today has a domestic market share of 68 in the MCVHCV segment 64 in the LCV segment and 32
in the multi-utility segment Apart from commercial vehicles which range from 1 ton to 35 tons GVW Telcorsquos
automobile products also include passenger vehicles and an extraordinarily popular multi-utility vehicle All these
products have been developed inhouse by the Companyrsquos own RampD Center This Center is equipped with the
latest computeraided design hardware and software enabling the company to respond quickly to changing
customer needs both in India and abroad
Telco has been exporting its products since 1969 and currently exports about a tenth of its
output Export markets include the Middle East Africa and Southeast Asia as well as
developed countries in Europe like France UK and Spain It is intended that exports should account for 20 of
the automobiles sold by the Company
Telcorsquos second line of business Construction Equipment has also grown rapidly and the
Company currently commands a 61 share in the excavator market and 90 in the crawler cranes market in
India The hydraulically operated construction equipment made by the company is in collaboration with Hitachi
34
Construction Machinery Limited of Japan There are ambitious plans for widening the range of excavators made
by the company and for adding new lines of construction equipment A recent addition to the excavator range is
Backhoe Loader
Telco is one of Indias largest private sector companies With a turnover of Rs 6637 billion it is the countrys
leading commercial vehicle manufacturer and the worldrsquos sixth largest automobile company
The widely successful Tata Indica which is Euro 1 and 2 compliant is the countryrsquos first
indigenously designed developed and manufactured passenger car The company also
makes several other passengers vehicles including the Safari the Sumo the Sierra the Tata Estate and the
Tatamobile pick-up
The companyrsquos products have received wide acceptance not only in India but also in markets in the Middle East
Asia Africa and Europe
Chapter 52 Areas of business
The company manufactures medium heavy and light commercial vehicles multi-utility
vehicles and passenger cars It also makes general and special purpose machines for
automotive applications at its machine tool division These include NCCNC horizontal and inline machining
centers flexible manufacturing systems CNC cylindrical grinding machines and robots for welding cutting
painting and other applications
In 1999 the companyrsquos revenues from its four manufacturing plants at three locations in India were Rs 6637
billion ($15735 million) In 1998 they were Rs 7026 billion ($1893 million) (The average exchange rate in
1999 was Rs 4218 to one US dollar)
35
In the year ended 31 March 2000 the companyrsquos total exports were worth about Rs 50553 crore against about
Rs 60078 crore in the previous year
Locations
The companyrsquos manufacturing plants in India are at Jamshedpur in Bihar Pimpri and
Chinchwad near Pune in Maharashtra and Lucknow in Uttar Pradesh A fifth manufacturing facility is being set
up at Dharwad in Karnataka
Collaborations
The Company has technical tie-ups with
bull The Institute of Development in Automotive Engineering SPA Italy for assistance in
small car body design and styling
bull Nachi Fujikoshi Corporation Japan for robots for welding painting and other
automotive applications
bull Le Moteur Moderne France for the development of diesel and petrol engines for
passenger cars and
bull Robert Bausch GmbH Germany for application work on the engine management
system for 4 PL petrol engines
36
Chapter 53 Tata Motors ndashSuccessful Car Indica
TELCO launched Indica when the TATA group was in red Telco chairman Ratan Tata said that the 1400 cc car
Indica would drive the company out of the red
Tata while talking to reporters at the IETF 99 in a videoconference from Mumbai said that the overwhelming
response of over 125 lakh initial bookings for the Indica had come as a surprise It seems we touched the
national chord somewhere as people responded to the fact that this is the first Indian car said Tata Indica is not
the end of the road for Telco when it comes to passenger cars It is just the beginning as there are more to come
said Tata adding that the company was working on another mid-size car after Indica
Telco had to produce 60000 cars a year to break-even The group created two
organizations within Telco one dealing with commercial vehicles and the other with passenger cars The
company under took a major restructuring exercise whereby the passenger car and commercial vehicles divisions
would function as two separate business units Telco had a strategy to go for exports after addressing the initial
requirements of the domestic market
Awards and Recognition
In May 2000 Tata Engineering and Locomotive Company Ltd (Telco) won a national award for successful
indigenous technology used in the Indica car project The award titled National award for successful
commercialization of indigenous technology by an industrial concern for indigenous development and
commercialization of Tata Indica car was presented by the minister for human resource development science and
technology and ocean development
Dr Murli Manohar Joshi
37
In November 1999 Telco was awarded the Department of scientific and industrial research
national award for indigenous design of the Tata Indica It was the first company in India to implement stringent
emission norms well ahead of the mandate dates
Promotions
The Indica advertising made interest for the car go into overdrive The campaign revolved around the premise that
the Indica would not just meet peoples expectations it would exceed them Every advertisement has a story to
tell
Pre launch Campaign
The Indica campaign began in the right earnest in December 1998 It was advertised as the launch of a car that
will spell doom for the small cars It was directly aimed at Maruti 800 The ad line used in the first campaign was
ldquoCar makers will suddenly remember all the thing they forgot to give yourdquo This hinted that Indica would have
more features than any of the existing small cars Indica used the catch lines like ldquo More car per Carrdquo ldquoMore
dreams per carrdquo to suggest that Indica will be bigger in size to the existing small cars yet be in the small car
category It competes with the mid size cars on size and give them a run for their money with its cheaper price
tag
At the launch of the car TELCO claimed that the people would never have to suffer from a small car again and
that the n end of the year (1998) would be the end of the small cars
Launch Campaign
The launch campaign of Indica focussed on the many advantages that it offered over other cars in the same
segment It promised the customers more than the current offerings Its first advertisement carried the following
catch line ldquo50cc moped 100cc bike 800cc car Time you asked for morerdquo
38
It then concentrated its efforts on criticizing the negative aspects of Maruti 800 and highlighted how Indica has
removed those very defects and presented a very sophisticated and modern car to the Indian customer It even
pointed out that the shape of Maruti was very unconventional and that people would prefer the shape of Indica to
Maruti 800 The advertisement read ldquo Box shaped bubble shaped wedge shaped But then Gentlemen prefer
curvesrdquo
The launch campaign also focussed on the roomy interiors of Indica a feature not offered by Maruti at that point
of time Also the expertise of TATA in diesel engines and fuel efficiency of these were the highlight of the launch
campaign of Tata Indica
Post Launch Campaigns
While the Launch campaign focussed on the features of Indica the post launch advertisements focussed on the
superior after sales service and longer warranty periods offered by Indica
Telco was the first company to offer an 18-month warranty period on engine parts The most famous line used
during this campaign was ldquoWe could go on and on about service or give you the one word summary TATArdquo
While their main adversary was the Maruti 800 Telco felt that it could also tap the mid size segment using the
selling point of space given by Indica They carried a campaign which said ldquoForget small cars we even make big
cars feel smallrdquo
It then went on to highlight the fact that Indica was Euro II compliant even before it was legally binding upon car
manufacturers to do so It also highlighted the concrete wall safety test that Indica withstands and tried to
showcase the car as a safe and strong car
39
Chapter 6 COST REDUCTION TECHNIQUES
IN TATA MOTORSrsquoS INDICA
40
Chapter 6 Tata Indica - The Making Of The Small Car
with objective of minimizing costs
The research provides an understanding of the issues concerning the supply chain management system at
Telco in regard to its small car Indica It outlines how Telco built the supply chain for the car by leveraging its
existing competencies and how it transformed itself from an integrated truck manufacturer to an automobile
integrator and from a product-centric company to competence- centric company The case discusses various
components of the supply chain and emphasises how Telco orchestrated them with the objective of minimizing
costs
ldquoTelcorsquos 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 comerdquo
- Business India March 22 1999
In the early 1990s Telcorsquos Chairman Ratan Tata (Tata) was flirting with the idea of developing a small
car By mid-1994 a rudimentary design was in place In 1995 Telco announced that it planned to build a car
which would be priced close to the Maruti 800 shaped like the Zen and spacious as an Ambassador
Producing the new small car ndash Indica ndash represented a different kind of challenge for Telco Should Tata succeed he
would change the face of Telco As a truck-maker Telco was so integrated that it even made it own castings and
forgings As an automaker it would have to focus on the value chain that stretched between raw materials and after-sales
41
service as well as assembling the parts into the complete automobile
For its new venture Telco outsourced 80 of the components (1200 of its 1500-plus parts) from 200-odd vendors To
develop the Indica Telco had to combine the learnings from its predecessors with its own unique supply chain
management strategies to ensure a sustainable low-cost platform
By learning to build and manage a supply chain it would set the ground for leveraging the capabilities of the
automotive component-manufacturers who already operated in its target markets In other words Telco planned
to use its skills as an integrator--bringing together products and services from both upstream and downstream
operations and packaging them for the customer under a brand name in its new venture
Globally a car could be built in 48 months with an investment of US $ 3 billion (Rs 1275 billion) Indica was
built in 31 months on a budget of Rs 17 billion This seemed to have been possible by focussing on the supply
chain
Chapter 61 THE OUTSOURCING STRATEGY
For Telco outsourcing seemed to be one of the most difficult aspects of producing the Indica Unlike global
automobile majors Ford Motors or General Motors which had a global vendor-base that could be replicated on
a smaller scale in India Telco had to create a vendor-base from scratch Moreover it did not have the expertise
either to design a car or to build an engine for it
Against this background Telco had to take its primary lsquomake-or-buyrsquo decisions for the key inputs-design
engine and transmission Telco decided to shop globally for the best deals and use its own expertise to make
42
whatever modifications were needed
(Refer Table I for the components outsourced by Telco)
TABLE I
OUTSOURCING THE COMPONENTS
Components Supplier
5 door hatchback IDEA Italy
Engine Institut Francais du Petrol
France
Assembly Line Nissanrsquos Plant Australia
Presses Mercedes Benz
Pistons and Piston rings India Pistons
Electrical components and fuel injection
systems Lucas-TVS
Steering systems Rane TRW Steering Systems
Clutch facings and rear (drum) brake linings Sundaram Brake Linings (SBL)
Seating Systems Tata-Johnson Controls
Radiators Tata-Toyo
Rear view mirrors Tata-Ficosa
Front and rear bumper dash-board inside
trims Tata-Auto Plastics
Air conditioning kits Subros Ltd
Wind screens and windows Asahi Glass
Fuel lines Imperial Auto
Differential assemblies Sona Steering
43
Sheet metal items JBM Tools
Source Business Today March 22 1999 and December 7 1999
Telco turned to the Italian company IDEA for the product-design It bought the engine from the Institut
Francais du Petrol of France and applied its engineering skills to adapt the engine requirements The transmission
was developed in-house at its Engineering Research Centre (ERC) at Pune Of the Rs 25 billion it spent on
designing the Indica the major share went in buying design tools and training its engineers in new skills Telcorsquos
engineers traveled regularly to the sites of its technology suppliers to receive training before the actual delivery
of the machines
Telco also outsourced its assembly line from Nissanrsquos plant in Australia for just Rs 900 million Telco
transplanted it at its factory at Chikli near Pune which was newly set up for Indica A new assembly line of the
same proportions would have cost at least Rs 4 billion Again of the 3 presses for the Indica only 1 was new
acquired for Rs 900 million while the other 2 were bought second-hand from Mercedes-Benz and modified to
suit the Indica
Telcorsquos engineers and the ERC did the application engineering programming installation and commissioning to
save around 45 of the technology costs The tooling for the car too was supplied internally by Telcorsquos machine
tool division To manage the supply chain better Telco kept the number of suppliers for Indica to just 200 as
compared to about 1000 for trucks Most of the parts were supplied by Telcorsquos traditional suppliersmdash TVS Rane
Group and Tata Auto Component Systems (Taco) who were single source suppliers Pressed parts assemblies
and drive shafts were sourced from single vendors
44
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
by 2010 Indian consumers are demanding high quality cars so prices must be cut and costs minimized (source
Ernst amp Young)
In 2005 India produced nearly five times as many motor vehicles as in the early 1990s With annual production
nearing six million vehicles it is on pace to overtake Germany as the third largest national vehicle producer and
would trail only the United States and Japan in total vehicle output
Among the studys key findings are
To Study Cost Reduction techniques practiced in Manufacturing Industries(Automobile)
(a) Study of Effective Cost Reduction techniques in Supply Channel of distribution Network
(b) Study of Effective Cost Reduction techniques in Procurement of Raw Materials
(c) Study of Effective Cost Reduction techniques in Operational Management
The presence of a growing gap between customer expectations and company behaviors which creates opportunity
for some companies and increasing risk to others At a high level a companys degree of customer focus was the
most important purchase decision factor for customers and by a very wide margin
In terms of specific company behaviors mdash delivering customer-relevant quality products as expected was the
most desired factor very closely and unexpectedly followed by companies empowering their employees
6
Chapter 2 RESEARCH METHODOLOGY
7
8
Chapter 2 Research Methodology
CHAPTER 21 Primary Objective
The founder of the Japan-based Kaizen Institute Masaaki Imai defined Kaizen in his book Kaizen - The Key to
Japans Competitive Success as Kaizen means continuous improvement in the personal life home life social
life and working life Automobile companies applied Kaizen for continuous improvement in their operations
When Kaizen is applied to the workplace it means continuous improvement for - managers and workers Thus
Kaizen involves everyone in an organization to make improvements without large capital investments It can be
seen as a culture of continuous sustained improvement focusing on eliminating waste in all systems and
processes The Kaizen strategy begins and ends with people With Kaizen an involved leadership guides people
continuously to improve their abilities to meet high quality expectations low cost and on-time delivery which in
turn helps the organization gain a competitive edge
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
- Jay Wetzel Vice President and General Manager GM Technical Center commenting on the benefits
derived from CADCAMCAE tools in 200
To Study Operations of Automobile Company(Tata Motors)
(a) Study of Effective Cost Reduction techniques in Supply Channel of distribution Network
9
(b) Study of Effective Cost Reduction techniques in Procurement of Raw Materials
(c) Study of Effective Cost Reduction techniques in Operational Management
According to the Council of Logistics Management Supply Chain Management ldquothe process of planning
implementing and controlling efficient and cost effective flow of materials in-process inventory finished goods
and related information from point-of-order to point-of-consumption for the purpose of conforming to customer
requirements as efficiently as possiblerdquo The automobile industry has undergone significant structural and other
changes in the last decade or so In view of the present globalisation implementation of lean production and the
development of modularisation have changed the relationships between automobile assemblers (OEMs) and their
suppliers especially those in the first tierStiff competition among manufacturers will result in more mergers or
acquisitions The challenges automobile manufacturers and suppliers face include improving quality meeting cost
reduction targets and developing time to market
CHAPTER 22 Hypothesis
Is Automobile companies are following certain guidelines for Operations or not
Hypo 1- Network Planning ndash This is one of the most important issues for SCM
Determination of production requirements and inventory levels at the vendorrsquos facility for each product and
development of transportation flows between these facilities to the warehouses in a best possible way to reduce
total production inventory and ransportation costs with fulfilment of service level requirements
10
Hypo 2- IT and Decision Support Systemndash
This is another important challenge for SCM Today SCM is driven by the scope and opportunities appearing due
to abundance of data and the savings which can be achieved through efficient analysis of these data What data
should be transferred with its significance and most importantly what infrastructure is required internally and
between its partners is very important
Hypo 3- Supply chain integration and strategic partnering ndash
In SCM information sharing and operational planning are crucial for successfully integrated supply chain
CHAPTER 23 RESEARCH DESIGN
The study was conducted on part of Business Expansion plan of Automobile industry to expand their
existing Business On this part Exploratory Survey was conducted to know about Operatational Strategies of
automobile companies
This Market research is EXPLORATORY RESEARCH DESIGN Arguments in favors of EXPLORATORY
RESEARCH DESIGN is-
-It tests the Hypothesis examines the relationship and comes to a conclusion It test Hypothesis whether -
Is Automobile Companies using Network Planning
Is Automobile Companies using IT and Decision Support system
Is Automobile Companies Using Supply Chain Integration And Strategic Partnering
Findings and analysis are used for Decision making on account of Surveyed Data
11
In This type of Exploratory Research design involves Collection of Information from Secondary Data
In this Automobile Survey The whole study is Secondary data based oriented
a Secondary Data from Internet on Manufacturing Industries
b Journals on Cost reduction Techniques on manufacturing Industries
c Scholarly articles for brief about indian manufacturing industries
d Books on Operational management
e Review Articles on Supply Chain-Upstream and Down stream
f Study for Opeartion Research Techniques- Transportation Techniques
CHAPTER 24 Scope of the Study
Among the studys key findings are
Indian automobile and auto components industry is on a roll and there is an immense scope for management
for enhancing the supply chain of the sector India has become a favourable destination for foreign companies
to establish their facilities and form alliances with domestic companies Low cost of manufacturing
and conducive government support have been the major drivers for foreign companies investing in India
Indiarsquos large young population higher GDP growth and most importantly per capita passenger car penetration
is low at 85 car per thousand population which creates great opportunity for industry players to offer
an affordable four-wheeler alternative to the two-wheeler customers According to Planning Commission of India
Indian automobile industry is expected to grow at CAGR of 15 over the next five years The Indian economy is
12
now gaining momentum in the world of free trade and liberal movements of goods and services between
countries Therefore efficiency in supply will be critical for Indiarsquos automobile success
NEED FOR MATERIALS-SYSTEMS APPROACH
Improved materials and materials processing can and must play a large role in generating productive and effective
responses to the forces that will drive the automotive industry in the future However these forces often pull in
diverse directions when specific technological actions are considered For example aluminum alloys can be used
to reduce vehicle weight thereby reducing emissions and improving fuel economy but the added materials costs
currently offset these advantages for many applications As a result steel is still the major material of choice for
automobile construction today and will be difficult to supplant for the foreseeable future
Indiarsquos process-engineering potential can be utilised for redesigning of manufacturing
processes to make them more labour intensive and less capital intensive which will enable the MNCrsquos to reduce
their overall costs substantially For instance de-automating of the production processes which are applied in
Western countriesrsquo factories can reduce the overall manufacturing cost of some components by up to 20
In case of product engineering India has emerged as a leading destination in the world
Indiarsquos strength is in its design which helps in reducing costs For instance redesign of the Maruti Altorsquos steering
system has cut down its weight by 15 India with its skilled engineers can design a product very fast which in
turn reduces its development cost and lead times For example an Indian supplier took six months to design a
steering system for an automaker It took more than four years to develop similar system with suppliers in the
other low-cost countries Several automobile manufacturers have already set up their auto component facilities in
India
13
CHAPTER 25 Limitations
For Automobile Study Primary Data varies wrt Secondary Data on account of theoretical practices in field then
practical theories
With increasing disposable incomes and ever-growing burden on the public modes of transport the Indian
passenger car industry is heading for a bright future provided car manufacturers offer a world class cars that give
value for money use novel marketing concepts to entice potential buyers and offer good after-sales service
Demand for passenger cars in FY2002 is projected at approximately 970755 units while production is expected
to reach 1210000 units The year is likely to witness a spurt in exports due to excess supply and liberalization of
export policy by the government
Some of the future strategies that need to be addressed while entering in to Indian small car market include the
redesign of the vehicle to suit the Indian road conditions and to develop aggressive marketing strategy to counter
the cost advantage enjoyed by dominant players like Maruti due to high capacity utilization With growing
number of two wheeler owners opting for used cars vehicles with higher resale value and excellent service
network are likely to account for a major market share in the near future Moreover the introduction of Euro III
and Euro IV norms in the near future is likely to increase the scrapping rates of cars
Exports are likely to increase in the near future with the entry of international car giants like Daewoo Hyundai
Honda Siel GM and Ford that intend to use India as a manufacturing production base
14
Chapter 3 CRITICAL REVIEW OF
LITERATURE
15
CHAPTER 3 CRITICAL REVIEW OF LITERATURE
A just released customer research study titled Customers Say What Companies Dont Want to Hear throws a
bucket of ice water in the face of some core business management tenets mdash plus a number of keystone principles
of the marketing advertising and customer relationship management (CRM) industries
Greenberg adds Customers Say What Companies Dont Want To Hear proves a mission-critical strategic point
Businesses need to rethink their logic and develop new operating models based on customer centric behaviors and
valuations
Commenting on the findings Paul Greenberg author of the industry best-seller CRM at the Speed of Light
Customer Strategies for the 21st Century says Lee and Mangen have verified and amplified with hard data
the growing perception that the new breed of customer is here to stay and businesses need to react mdash or risk their
very existence
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 While a top manager should be the ideal customer he
should also be the greatest critic of his companys products If the CEO compromises or is only looking at the
margins then even if he is successful the companys success will be short lived
- Ratan Tata the Chairman Tata Group
16
Chapter 31 Automobile Market Overview
The domestic automobile market has been growing at 142 per cent CAGR over the past 4 years (2000-01 to
2004-05) while the auto components market has been growing at 192 per cent CAGR (2000-01 to 2003-04) The
industry (OEMs and suppliers together) contributed nearly 4 per cent to the countryrsquos GDP in 2003-04 The
automotive sector also offers significant employment opportunities It employs 045 million people directly and
around 10 million people indirectly
The industryrsquos capabilities in design engineering and manufacturing have been recognised the world over and
most automotive majors are looking to increasingly source auto components from India
India is emerging as one of the most attractive automotive markets in the world and is poised to become a key
sourcing base for auto components The table below captures the highlights of the sector in India that illustrates
its growing significanceSee Annexure A amp B
Indian Automobile Industry
Largest three wheeler market in the world
2nd largest two wheeler market in the world
4th largest passenger vehicle market in Asia
4th largest tractor market in the world
5th largest commercial vehicle market in the world
17
Chapter 32 Automobiles - Domestic Performance
The production and domestic sales of the automobiles in India have been growing strongly While production
increased from 48 million units in 2000-1 to 85 million units in 2004-05 (a CAGR of over 15 per cent) domestic
sales during the same period have gone up from 46 million to 79 million units (CAGR 142 per cent) A positive
trend in the domestic market is that the growth has not been driven by one or two segments but is consistent
across all key segments Two wheelers which constitute the majority of the industry volume have been growing
at a rate of 143 per cent three wheelers at a rate of 14 per cent and passenger vehicles at a rate of 113 per cent
Commercial vehicles have been growing at a higher rate of nearly 235 per cent although from a lower base
Since nearly all macro-economic indicators ndash GDP infrastructure population demographics interest rates etc ndash
are showing a favourable trend the domestic market for automobiles in India is expected to continue on its
growth trajectory
Chapter 33 Exports of automobiles from India
While the domestic sales of automobiles have been increasing at a significant rate exports have taken a quantum
leap in recent years The exports of automobiles from India have been growing at a CAGR of 39 per cent for the
past four years Exports growth has been spearheaded by the passenger vehicle segment which has grown at a
rate of 574 per cent
As a result the share of passenger vehicles in overall vehicle exports has increased from 18 per cent in 1998-99 to
26 per cent in 2004-05 Europe is the biggest importer of cars from the country while predominantly African
nations import buses and trucks The Association of South East Asian Nations (ASEAN) region is
the prime destination for Indian two wheelers
18
Chapter 34 REVIEW OF THESIS DONE
This is easy to understand because the per capita disposable income of the people has gone up remarkably Over
the last five years per capita personal disposable income has gone up by around 8 which has increased
purchasing capacity of the people in the country Other factors have also contributed to this high growth in Indian
automobile sector These include lowering age of first car users shorter replacement cycles rising duel income
families nw technology which is lowering cost of ownership low car penetration in the country and most
importantly growing steel production in the country In addition wide variety and easily available financing
options are also some of the major reasons for surge in demand for automobiles in India
Global automobile manufacturers are consistently streamlining their business process by outsourcing their non-
core activities to low-cost countries like IndiaGlobal automobile manufacturers are under tremendous pressures
to innovate their manufacturing process and at the same time to reduce costs In view of the present global
competitiveness they must not only develop new features to strengthen their customer requirements but also
follow the environmental and safety standards In addition the base price of a car is expected to remain same over
the next decade As a result companies are forced to source more components from low-cost countries like India
According to Mckinsey global outsourcing of automobile and auto components would reach US$375 billion by
2015 from US$65 billion in 2002 India has plenty of scope to garner this potential According to the management
consulting firm India has the potential to notch this opportunity and reach up to US$25 billion to emerge as
major sourcing destinations along with China Mexico and Thailand Besides low cost Indias auto components
industry has the major advantage of enormous skills in process product and capital engineeringmdashits excellent
manufacturing history and good education system
19
Human beings think our way is the best but at Toyota we are told we have to always change We believe there is
no perfect way so we continue to search The goal is to break the current condition through Kaizen
- Shoichiro Toyoda Chairman Toyota Motor Corporation in December 2000
When Kaizen is applied to the workplace it means continuous improvement for - managers and workers Thus
Kaizen involves everyone in an organization to make improvements without large capital investments It can be
seen as a culture of continuous sustained improvement focusing on eliminating waste in all systems and
processes The Kaizen strategy begins and ends with people With Kaizen an involved leadership guides people
continuously to improve their abilities to meet high quality expectations low cost and on-time delivery which in
turn helps the organization gain a competitive edge
The production divisions council which checked the plants objectives occasionally modifying them taking into
account the companys profit targets replaced the production allowance councils After approval these objectives
became the Kaizen norm of each plant in terms of production efficiency The method of determining the
production efficiency was altered to make it less constrained as the standard time was fixed by measuring the time
really required for workers operations whereas earlier standard time was fixed on the basis of the best standard
time marked in the past
20
Chapter 4 Industry Profile
21
CHAPTER 4 Industry Profile
The Trans-nationals were also serious about developing vendors in India India is
bound to become an important destination for the global auto industry It took the financial turmoil in South East
Asia and the slowdown in the Chinese auto market to reinforce the targeting to Indian Market The new interest in
the small car segment also reflects certain amount of bullishness on the part of auto manufacturers about India
Despite projected over capacities--and current losses carmakers continued to queue
up their investments for small car segment To day there are 10 global auto majorsmdashincluding the $13-billion
Suzuki Motor (Japan) the $65-billion Daewoo (South Korea) the $147-billion Ford (US) the $47-billion Fiat
(Italy) and the $168-billion General Motors (US) operating in Indian Market
Chapter 41 The Pre 1997 Automobile Market
As late as 1997 the auto market in India was clearly segmented At the entry level
were MULs 800-cc car--priced between Rs 210-lakh and Rs 245 lakh--and the Omni at Rs 175 lakh At the
next level were the 993-cc Zen--priced at Rs 370 lakh--and the 999-cc Fiat Uno (Rs 362 lakh) Then came the
1300-cc Esteem models--priced between Rs 469 lakh and Rs 595 lakh--the 1498-cc Cielo (Rs 620 lakh) and
the 1598-cc Opel Astra (Rs 752 lakh) followed by premium cars like Mercedes-Benzs E-220 (Rs 22 lakh)
Changing Lanes
Two events have upset the equations in the price-segmented car market Daewoo has
Changed the lanes with the Cielo which is now priced at Rs 490 lakh and competes with the Zens top-end
model (Rs 440 lakh) and the Esteems lower-end version (Rs 469 lakh) Ceilo has created a new value segment
where the price is not proportionate to the size Daewoos strategic response has very clearly redefined
differentiation from price or size to value
22
Hyundai Motors India a subsidiary of the $27-billion Hyundai of South Korea launched
its 999-cc Santro at the Auto Expo 1998 in Delhi The model comes in five variants with the non-air-
conditioned manual transmission model priced at Rs 280 lakh and the semiautomatic air-conditioned GLS
model priced between Rs 315 lakh and Rs 4 lakh ClearlyHyundais strategy is aimed at taking on the market
leader Maruti Udyog Limited But by pricing the deluxe model at Rs 4 lakh it is also bridging the gap between
the small and the middle car segments At present Marutirsquos Esteem LX is priced Rs 70000 more than the
Santro GLS while the Cielo is priced Rs 90000 more
The further entry of new players will only blur the segments New entrants will be
involved in price war to find a foothold in the Indian market Few of the examples include
TELCOs positioning of its 1400-cc Indica car--launched in November 1998 and priced close to Marutirsquos 800-cc
model as a small carand Honda sneaking its 1300-cc City into the segment vacated by the Cielo although it is
an accepted fact that pricing or positioning cannot be done in isolation In a crowded market that must depend on
the available strategic opportunities
By creating new segments companies can broaden their market base increase
capacity utilization levels pre-empt competitors market entry moves and importantly lower costs While Maruti
did that by launching three versions of the Esteem TELCO accomplished it by using a common platform for the
Sumo the Estate and the Sierra models Hyundai is also planning to come to the market with five variants in near
future At high volumes costs can be lowered by more than 20 per cent across variants due to experience curve
effect
Configuring the sticker price for a car in the market today is no more a functional
decision It has become a strategic decision as it identifies the key segmentrsquos response
23
elasticity to the market offer The two key inhibiting factors for the poor response to the auto war fare in Indian
Car Market are basically the low per capita income at $350 (Rs 14000 at current prices) and the high
manufacturing costs A large part of the population expected to graduate from two wheelers to four wheelers has
not responded as they were supposed to during this period of time The domestic auto giant Maruti Udyog
limited still forces the new players to benchmark themselves against its products which roll out from a
depreciated yet high-volume plant It enjoys the fast mover as well as the cost advantage with the higher capacity
utilisation that helps him to cut costs across as more cars you make the cheaper they get
With the worldrsquos second largest and fastest-growing population there is no doubt that Indiarsquos potential in both
economic and population terms and the effect it will have on the auto industry in the next years During the last
two years export from this sector has grown significantly owing mainly to the export of cars and two-three-
wheelers
The industry is characterized by a very high percentage (75) of production in the 23 wheeler sector India ranks
as the largest manufacturer of motorcycles and second largest in manufacturing of scooters in the world India
today is also the second largest manufacturer of tractors as well The industry has intense forward and backward
integration
The Indian automotive industry had experienced an extraordinary growth due to the improvement in the living
standards of the middle class and an increase in their disposable incomes Moreover the liberalization steps such
as relaxation of the foreign exchange and equity regulations reduction of tariffs on imports and refining the
banking policies initiated by the Government of India have played an equally important role in bringing the
Indian Automotive industry to great heights
It is estimated that the sale of passenger cars have tripled compared to their sale in the last five years Thus the
sale of cars has reached a figure of 1 million users and is expected to increase further Its also to be noted that the
24
demand for luxurious models SUVs and mini-cars for family owners have shot up largely due to increase in the
consumers buying capacity
The Indian automotive market
India country fact file 2005
Population 1 080 264388
Per Capita GDP (PPP) $3400
GDP Growth Rate 71
Total automotive sales 2005 1 439604 (889333)
Total automotive production 2005 1 643460 (1 000567)
Market growth 2005 vs 2004 70 (64)
Best sold model PC segment 2004 Maruti Alto (168)
Best sold model LCV segment 2004 Maruti Omni (213)
(passenger cars) (market share in segment)
Source httpwwwsegmentycomIndiahtm
Chapter 42 The Protected Indian Domestic Automobile Sector
MUL which set up shop in 1984 had 10 long years of relative protection to emerge as a formidable competitor
with high volume and a strong brand image in the mind of Indian customers When the industry was deregulated
in 1993 the cost barrier had become so high that new companies could not dare to look at the small car segment
25
Instead they settled for the mid-size segment where both volumes and margins were expected to be high
However a shakeout in the Indian mid-size car segment the slowdown in international auto sales pushed
transnational auto majors into India which have now turned the tide against MULThe present generation small
cars launched recently are more contemporary in terms of both design and technology while Marutis small-car
technology is at least a decade old
Keeping the future growth potential of Indian market in mind the auto majors are prepared to bear losses for the
next 10 years This will help them to gain a good market share the long run and provide breathing space to
counter the strategic moves of the leader Hence the narrowing price differential between the old and the new
small cars is the first call of the auto majors against Maruti in Indian Market If Maruti has to try and match the
features of new generation small cars it would mean additional costs On the contrary if Maruti decides to
hold its price line and add new features it could translate into losses or at least low profits But MUL can still
bank on at least two Suzuki models the proposed 657-cc Cervo C and the current 996-cc Wagon R to battle its
rivals in the future
Chapter 43 The Advent of the Auto Majors
Besides bracing up for losses in the initial years auto majors like Hyundai and Daewoo are banking on exports
too At the moment export may look unattractive because of the South Asian meltdown but in the long run low
production costs and component-manufacturing skills will make India- made cars competitive at global market
place Hence they are looking India as a production base to cater to the growing Asian market by way of
outsourcing from Indian manufacturing base However many a hurdles they have to cross on the journey to
profitability
26
The investments necessary for a large plant are simply huge Daewoo has so far sunk Rs 2700 crore in a
120-lakh-unit-a-year plant Unlike China which has restricted the number of companies India has followed an
open door policy for car manufacturers which has resulted in emergence of fragmented markets with distributed
capacity
An Original Equipment Manufacturer (OEM) needs a minimum economic size of 150 lakh cars a year to attract
vendor interest Daewoo was able to slash the Cielos price as it is cheaper to import components because of the
devaluation of the South Asian currencies The auto majors are lobbying with the government to ease the strict
indigenisation norms in the new automobile policy so that they can import the components from other countries
This will help them to cut the prices and to go head on the market leader particularly in a price responsive market
like that of small car segment
The other argument is that with the given import duty of 103 per cent on Completely Knocked-Down Kits
(CKDs) which is the same as that on Completely Built-up Units (CBUs) and 68 per cent on components the
imports will become costlier and compel companies to localize their manufacture The exposure to currency
fluctuations which crippled the four Japanese light commercial vehicle projects in the late 1980s is also minimal
when a company localizes component manufacture
Besides lean manufacturing techniques like Just-In-Time (JIT) are possible only when the supplier is located
close to the manufacturing unit If Maruti is a success story it is only because it indigenised 85 per cent of its
components within five years of going on-stream
Then theres the question of servicing the replacement market for spares Customers typically expect
components to be available locally and at competitive prices Imports cannot guarantee that but it is a
27
tremendous job to localize components at the right quality and price given the supplier problems in prevalent in
India
An Original Equipment Manufacturerrsquos competitive advantage lies in its marketing skills Having achieved price
and technology parity it can easily woo the consumer with attractive financing schemes and superior after-sales
service Nudged by the competition most auto players have a clutch of schemes to offer Daewoo Motors India
provides interestfree car finance Ford Motor and General Motors have slashed interest rates MULs joint
venture finance company Maruti Countrywide is offering loans at 1350 per cent when the prevailing lending
rate is 17 per cent and above
Chapter 44 The After Sales Service Scenario
After sales service for cars is as critical as showroom deals Maruti services its 2 million customers through an
army of 174 dealers spread across the country It will be impossible for a company to duplicate such
infrastructure particularly with investments in a metro-based showroom going up to Rs 4 crore Margins in
retailing are moving from actual sales to after sales service
The problem of price war is evident with Auto majors as much as with dealers In a bid to woo the customers
dealers particularly in non-prime locations are cutting their margins It will not be surprising if single-brand
dealers eventually turn into multi-brand sellers in future
Doing so will benefit all the three constituents in the marketing chain the OEM the dealer and the buyer The
carmaker can expand his reach without expensive investment the dealer can increase his revenue and the
customer gets a variety of models and brands under one roof in future
The local partner will be the loser in this fierce battle Without the means to make either matching equity or
technological investment the Indian collaborator will be driven off the road
28
It has already happened to the Rs 166-crore DCM which tied up with Daewoo Motors and can happen to both
the Rs 1258-crore Hindustan Motors (Partner General Motors) and the Rs 360657 crore Mahindra amp Mahindra
(Partner Ford Motor)
So they are reconciled to adopting a minority role or becoming auto component vendors This list includes
Siddharth Shrirams Rs 430-crore Siel (Partner Honda) the Kirloskars (Partner Toyota) and the Munjals of the
Rs 2000-crore Hero Group (Partner BMW) And the evidence is compelling eg Hindusthan Motors has a
passive role in its joint venture with General Motors although the Opel Astra is manufactured at HMs Halol plant
in Gujarat The same can be forecasted about Mahindra and Mahindrarsquos joint venture with Ford Motor What can
prolong the life of the joint venture is distribution muscle as it will take at least five years for a transnational auto
major to build a strong distribution channel in this country
By all accounts the auto industry is headed for a glut With an estimated demand for cars to touch 9 lakhs in
2001-2002 the installed capacity will rise to 16 lakhs So the current growth rate in Indian market is not
sustainable There will be at least two years of stagnant or declining demand before the resumption of the growth
trendThere is a projected demand of 1-lakh cars in the mid-segment alone by 2001-2002 And the car numbers
will add up to around 6 lakh a year That will engender a shakeout which is already afoot in the other Asian
markets For instance poor off -take and a consequent build-up of car inventories has led to a fierce price-war in
China
Chapter 45 Market Potential of Indian Automobile Segment
The demand for the small car will continue to drive growth for the next five years Of the total sales of Maruti in
2000-2001around 85 per cent were small cars The Esteems sales dropped in the same period where as the small
cars drove MULs sales So demand for small cars will leap only if certain conditions are fulfilled
29
Rise in the Income Levels In the US auto demand rises by 4 per cent for every 1 per cent increase in the real
Gross Domestic Product but this is irrelevant for India as only the top 150 per cent of the population
can afford a car The demand can shoot up if the income levels of the top 5 per cent continue to rise in future
Level Of Motorization It is stagnant at 170 cars per 1000 people for decades However in the post-liberalization
period the motorization level has leaped to 370 cars per 1000 Although it is still lower than the levels in the
developed markets motorization is bound to rise further in the coming years
Chapter 451 Vehicle Prices
Falling imports and excise duties coupled with competition will continue to boost demand and
the prices are likely to fall further at least in the short run
Chapter 452 Consumer Finance
Over 60 per cent of customers opt for consumer finance That figure could go up if interest
rates continue to fall
Chapter 453 Infrastructure
Traffic congestion and bad roads could deter potential buyers from going for small cars
particularly in small cities of India The future is not very heartening in this aspect
Chapter 454 Product Availability
As manufacturers shift their attention to the small car more and more people will be able to
afford it and demand will only rise in the future period of time
30
Chapter 46 The Future-Indian Automobile
There is a sharp contrast in the buying behavior of Indian Consumer compared to their western counter parts yet
there is no doubt that Indian car market is going to increasingly resemble the latter In the West the industry is
likely to be dominated by three or four major players With a likely demand of 11 lakh cars by 2006 there will be
a few niche players like BMW Mercedes-Benz and Audi with luxury cars to offer Unless car manufacturers
have a large range of vehicle to offer they will be unable to subsidize their costlier models
The market will consolidate to few segments The carmaker has to make diverse models based on diverse and
flexible platforms Products like the stripped-down economy car the sports utility vehicle or the van should be
built on the same platform For the price-sensitive customers there can be a no-frills version a loaded version for
the middle customer and luxury car manufacturers can target the high-end customers
The fortunes of the autoobile industry will continue to hinge on the large price sensitive customers who will
graduate to the higher end of the market over a period of time
Until then the small car will continue to drive demand and most of the car-manufacturers are
gearing up for this eventuality
31
Chapter 5 Company Profile
ldquoTata Motorsrdquo
32
CHAPTER 5 Company ProfileTata Motors
Tata Motors previously known as Tata Engineering and Locomotive Co Ltd (TELCO) is one of the largest
companies in the Tata Group and one of Indias largest business houses Tata Motors is Indias leading
commercial vehicle manufacturer and the third largest passenger car manufacturer The company is the sixth
largest truck manufacturer in the world Tata Motors recently received the Balanced Scorecard Collaborative Hall
of Fame Award for having achieved a significant turnaround of its overall performance A comprehensive quality
improvement and cost cutting initiative in September 2000 has played an important role in the companys
turnaround from a loss of Rs 500 crores in the year ended March 2001 to a profit of Rs 28 crores in the first
quarter of 2002-2003
Tata Engineering and Locomotive Company (TELCO)
Chapter 51 History amp Evolution
Tata Engineering and Locomotive Company Ltd popularly known as Telco was incorporated in 1945 to
manufacture steam locomotives In 1954 the company diversified into automobile manufacturing through a
collaboration with Daimler-Benz for the manufacture of commercial vehicles By the time the collaboration ended
in 1969 Telco had not only become an independent producer of medium commercial vehicles (MCVs) with
negligible import contentbut had developed the capability of designing and developing such vehicles The
Company progressively widened its product range to cover heavy commercial vehicles (HCVs) and light
commercial vehicles (LCVs) implementing one expansion program after another
To sustain the unrelenting pace of its growth Telco added machining press and assembly
33
capacities set up its own forge and foundries and virtually created the countryrsquos automobile ancillary industry
The Company even developed facilities for designing and manufacturing state-of-the-art machine tools material
handling equipment dies and fixtures To accommodate the Companyrsquos growing activity base a large modern
complex was set up at Pune in western India and a new plant became operational at Lucknow in the north of the
country
To provide a business focus for the Companyrsquos main activity areas Telco has created twobusiness unitsrsquo -
Automobiles and Construction Equipment ndash both of which have notched up record-breaking results
Telco today has a domestic market share of 68 in the MCVHCV segment 64 in the LCV segment and 32
in the multi-utility segment Apart from commercial vehicles which range from 1 ton to 35 tons GVW Telcorsquos
automobile products also include passenger vehicles and an extraordinarily popular multi-utility vehicle All these
products have been developed inhouse by the Companyrsquos own RampD Center This Center is equipped with the
latest computeraided design hardware and software enabling the company to respond quickly to changing
customer needs both in India and abroad
Telco has been exporting its products since 1969 and currently exports about a tenth of its
output Export markets include the Middle East Africa and Southeast Asia as well as
developed countries in Europe like France UK and Spain It is intended that exports should account for 20 of
the automobiles sold by the Company
Telcorsquos second line of business Construction Equipment has also grown rapidly and the
Company currently commands a 61 share in the excavator market and 90 in the crawler cranes market in
India The hydraulically operated construction equipment made by the company is in collaboration with Hitachi
34
Construction Machinery Limited of Japan There are ambitious plans for widening the range of excavators made
by the company and for adding new lines of construction equipment A recent addition to the excavator range is
Backhoe Loader
Telco is one of Indias largest private sector companies With a turnover of Rs 6637 billion it is the countrys
leading commercial vehicle manufacturer and the worldrsquos sixth largest automobile company
The widely successful Tata Indica which is Euro 1 and 2 compliant is the countryrsquos first
indigenously designed developed and manufactured passenger car The company also
makes several other passengers vehicles including the Safari the Sumo the Sierra the Tata Estate and the
Tatamobile pick-up
The companyrsquos products have received wide acceptance not only in India but also in markets in the Middle East
Asia Africa and Europe
Chapter 52 Areas of business
The company manufactures medium heavy and light commercial vehicles multi-utility
vehicles and passenger cars It also makes general and special purpose machines for
automotive applications at its machine tool division These include NCCNC horizontal and inline machining
centers flexible manufacturing systems CNC cylindrical grinding machines and robots for welding cutting
painting and other applications
In 1999 the companyrsquos revenues from its four manufacturing plants at three locations in India were Rs 6637
billion ($15735 million) In 1998 they were Rs 7026 billion ($1893 million) (The average exchange rate in
1999 was Rs 4218 to one US dollar)
35
In the year ended 31 March 2000 the companyrsquos total exports were worth about Rs 50553 crore against about
Rs 60078 crore in the previous year
Locations
The companyrsquos manufacturing plants in India are at Jamshedpur in Bihar Pimpri and
Chinchwad near Pune in Maharashtra and Lucknow in Uttar Pradesh A fifth manufacturing facility is being set
up at Dharwad in Karnataka
Collaborations
The Company has technical tie-ups with
bull The Institute of Development in Automotive Engineering SPA Italy for assistance in
small car body design and styling
bull Nachi Fujikoshi Corporation Japan for robots for welding painting and other
automotive applications
bull Le Moteur Moderne France for the development of diesel and petrol engines for
passenger cars and
bull Robert Bausch GmbH Germany for application work on the engine management
system for 4 PL petrol engines
36
Chapter 53 Tata Motors ndashSuccessful Car Indica
TELCO launched Indica when the TATA group was in red Telco chairman Ratan Tata said that the 1400 cc car
Indica would drive the company out of the red
Tata while talking to reporters at the IETF 99 in a videoconference from Mumbai said that the overwhelming
response of over 125 lakh initial bookings for the Indica had come as a surprise It seems we touched the
national chord somewhere as people responded to the fact that this is the first Indian car said Tata Indica is not
the end of the road for Telco when it comes to passenger cars It is just the beginning as there are more to come
said Tata adding that the company was working on another mid-size car after Indica
Telco had to produce 60000 cars a year to break-even The group created two
organizations within Telco one dealing with commercial vehicles and the other with passenger cars The
company under took a major restructuring exercise whereby the passenger car and commercial vehicles divisions
would function as two separate business units Telco had a strategy to go for exports after addressing the initial
requirements of the domestic market
Awards and Recognition
In May 2000 Tata Engineering and Locomotive Company Ltd (Telco) won a national award for successful
indigenous technology used in the Indica car project The award titled National award for successful
commercialization of indigenous technology by an industrial concern for indigenous development and
commercialization of Tata Indica car was presented by the minister for human resource development science and
technology and ocean development
Dr Murli Manohar Joshi
37
In November 1999 Telco was awarded the Department of scientific and industrial research
national award for indigenous design of the Tata Indica It was the first company in India to implement stringent
emission norms well ahead of the mandate dates
Promotions
The Indica advertising made interest for the car go into overdrive The campaign revolved around the premise that
the Indica would not just meet peoples expectations it would exceed them Every advertisement has a story to
tell
Pre launch Campaign
The Indica campaign began in the right earnest in December 1998 It was advertised as the launch of a car that
will spell doom for the small cars It was directly aimed at Maruti 800 The ad line used in the first campaign was
ldquoCar makers will suddenly remember all the thing they forgot to give yourdquo This hinted that Indica would have
more features than any of the existing small cars Indica used the catch lines like ldquo More car per Carrdquo ldquoMore
dreams per carrdquo to suggest that Indica will be bigger in size to the existing small cars yet be in the small car
category It competes with the mid size cars on size and give them a run for their money with its cheaper price
tag
At the launch of the car TELCO claimed that the people would never have to suffer from a small car again and
that the n end of the year (1998) would be the end of the small cars
Launch Campaign
The launch campaign of Indica focussed on the many advantages that it offered over other cars in the same
segment It promised the customers more than the current offerings Its first advertisement carried the following
catch line ldquo50cc moped 100cc bike 800cc car Time you asked for morerdquo
38
It then concentrated its efforts on criticizing the negative aspects of Maruti 800 and highlighted how Indica has
removed those very defects and presented a very sophisticated and modern car to the Indian customer It even
pointed out that the shape of Maruti was very unconventional and that people would prefer the shape of Indica to
Maruti 800 The advertisement read ldquo Box shaped bubble shaped wedge shaped But then Gentlemen prefer
curvesrdquo
The launch campaign also focussed on the roomy interiors of Indica a feature not offered by Maruti at that point
of time Also the expertise of TATA in diesel engines and fuel efficiency of these were the highlight of the launch
campaign of Tata Indica
Post Launch Campaigns
While the Launch campaign focussed on the features of Indica the post launch advertisements focussed on the
superior after sales service and longer warranty periods offered by Indica
Telco was the first company to offer an 18-month warranty period on engine parts The most famous line used
during this campaign was ldquoWe could go on and on about service or give you the one word summary TATArdquo
While their main adversary was the Maruti 800 Telco felt that it could also tap the mid size segment using the
selling point of space given by Indica They carried a campaign which said ldquoForget small cars we even make big
cars feel smallrdquo
It then went on to highlight the fact that Indica was Euro II compliant even before it was legally binding upon car
manufacturers to do so It also highlighted the concrete wall safety test that Indica withstands and tried to
showcase the car as a safe and strong car
39
Chapter 6 COST REDUCTION TECHNIQUES
IN TATA MOTORSrsquoS INDICA
40
Chapter 6 Tata Indica - The Making Of The Small Car
with objective of minimizing costs
The research provides an understanding of the issues concerning the supply chain management system at
Telco in regard to its small car Indica It outlines how Telco built the supply chain for the car by leveraging its
existing competencies and how it transformed itself from an integrated truck manufacturer to an automobile
integrator and from a product-centric company to competence- centric company The case discusses various
components of the supply chain and emphasises how Telco orchestrated them with the objective of minimizing
costs
ldquoTelcorsquos 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 comerdquo
- Business India March 22 1999
In the early 1990s Telcorsquos Chairman Ratan Tata (Tata) was flirting with the idea of developing a small
car By mid-1994 a rudimentary design was in place In 1995 Telco announced that it planned to build a car
which would be priced close to the Maruti 800 shaped like the Zen and spacious as an Ambassador
Producing the new small car ndash Indica ndash represented a different kind of challenge for Telco Should Tata succeed he
would change the face of Telco As a truck-maker Telco was so integrated that it even made it own castings and
forgings As an automaker it would have to focus on the value chain that stretched between raw materials and after-sales
41
service as well as assembling the parts into the complete automobile
For its new venture Telco outsourced 80 of the components (1200 of its 1500-plus parts) from 200-odd vendors To
develop the Indica Telco had to combine the learnings from its predecessors with its own unique supply chain
management strategies to ensure a sustainable low-cost platform
By learning to build and manage a supply chain it would set the ground for leveraging the capabilities of the
automotive component-manufacturers who already operated in its target markets In other words Telco planned
to use its skills as an integrator--bringing together products and services from both upstream and downstream
operations and packaging them for the customer under a brand name in its new venture
Globally a car could be built in 48 months with an investment of US $ 3 billion (Rs 1275 billion) Indica was
built in 31 months on a budget of Rs 17 billion This seemed to have been possible by focussing on the supply
chain
Chapter 61 THE OUTSOURCING STRATEGY
For Telco outsourcing seemed to be one of the most difficult aspects of producing the Indica Unlike global
automobile majors Ford Motors or General Motors which had a global vendor-base that could be replicated on
a smaller scale in India Telco had to create a vendor-base from scratch Moreover it did not have the expertise
either to design a car or to build an engine for it
Against this background Telco had to take its primary lsquomake-or-buyrsquo decisions for the key inputs-design
engine and transmission Telco decided to shop globally for the best deals and use its own expertise to make
42
whatever modifications were needed
(Refer Table I for the components outsourced by Telco)
TABLE I
OUTSOURCING THE COMPONENTS
Components Supplier
5 door hatchback IDEA Italy
Engine Institut Francais du Petrol
France
Assembly Line Nissanrsquos Plant Australia
Presses Mercedes Benz
Pistons and Piston rings India Pistons
Electrical components and fuel injection
systems Lucas-TVS
Steering systems Rane TRW Steering Systems
Clutch facings and rear (drum) brake linings Sundaram Brake Linings (SBL)
Seating Systems Tata-Johnson Controls
Radiators Tata-Toyo
Rear view mirrors Tata-Ficosa
Front and rear bumper dash-board inside
trims Tata-Auto Plastics
Air conditioning kits Subros Ltd
Wind screens and windows Asahi Glass
Fuel lines Imperial Auto
Differential assemblies Sona Steering
43
Sheet metal items JBM Tools
Source Business Today March 22 1999 and December 7 1999
Telco turned to the Italian company IDEA for the product-design It bought the engine from the Institut
Francais du Petrol of France and applied its engineering skills to adapt the engine requirements The transmission
was developed in-house at its Engineering Research Centre (ERC) at Pune Of the Rs 25 billion it spent on
designing the Indica the major share went in buying design tools and training its engineers in new skills Telcorsquos
engineers traveled regularly to the sites of its technology suppliers to receive training before the actual delivery
of the machines
Telco also outsourced its assembly line from Nissanrsquos plant in Australia for just Rs 900 million Telco
transplanted it at its factory at Chikli near Pune which was newly set up for Indica A new assembly line of the
same proportions would have cost at least Rs 4 billion Again of the 3 presses for the Indica only 1 was new
acquired for Rs 900 million while the other 2 were bought second-hand from Mercedes-Benz and modified to
suit the Indica
Telcorsquos engineers and the ERC did the application engineering programming installation and commissioning to
save around 45 of the technology costs The tooling for the car too was supplied internally by Telcorsquos machine
tool division To manage the supply chain better Telco kept the number of suppliers for Indica to just 200 as
compared to about 1000 for trucks Most of the parts were supplied by Telcorsquos traditional suppliersmdash TVS Rane
Group and Tata Auto Component Systems (Taco) who were single source suppliers Pressed parts assemblies
and drive shafts were sourced from single vendors
44
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
Chapter 2 RESEARCH METHODOLOGY
7
8
Chapter 2 Research Methodology
CHAPTER 21 Primary Objective
The founder of the Japan-based Kaizen Institute Masaaki Imai defined Kaizen in his book Kaizen - The Key to
Japans Competitive Success as Kaizen means continuous improvement in the personal life home life social
life and working life Automobile companies applied Kaizen for continuous improvement in their operations
When Kaizen is applied to the workplace it means continuous improvement for - managers and workers Thus
Kaizen involves everyone in an organization to make improvements without large capital investments It can be
seen as a culture of continuous sustained improvement focusing on eliminating waste in all systems and
processes The Kaizen strategy begins and ends with people With Kaizen an involved leadership guides people
continuously to improve their abilities to meet high quality expectations low cost and on-time delivery which in
turn helps the organization gain a competitive edge
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
- Jay Wetzel Vice President and General Manager GM Technical Center commenting on the benefits
derived from CADCAMCAE tools in 200
To Study Operations of Automobile Company(Tata Motors)
(a) Study of Effective Cost Reduction techniques in Supply Channel of distribution Network
9
(b) Study of Effective Cost Reduction techniques in Procurement of Raw Materials
(c) Study of Effective Cost Reduction techniques in Operational Management
According to the Council of Logistics Management Supply Chain Management ldquothe process of planning
implementing and controlling efficient and cost effective flow of materials in-process inventory finished goods
and related information from point-of-order to point-of-consumption for the purpose of conforming to customer
requirements as efficiently as possiblerdquo The automobile industry has undergone significant structural and other
changes in the last decade or so In view of the present globalisation implementation of lean production and the
development of modularisation have changed the relationships between automobile assemblers (OEMs) and their
suppliers especially those in the first tierStiff competition among manufacturers will result in more mergers or
acquisitions The challenges automobile manufacturers and suppliers face include improving quality meeting cost
reduction targets and developing time to market
CHAPTER 22 Hypothesis
Is Automobile companies are following certain guidelines for Operations or not
Hypo 1- Network Planning ndash This is one of the most important issues for SCM
Determination of production requirements and inventory levels at the vendorrsquos facility for each product and
development of transportation flows between these facilities to the warehouses in a best possible way to reduce
total production inventory and ransportation costs with fulfilment of service level requirements
10
Hypo 2- IT and Decision Support Systemndash
This is another important challenge for SCM Today SCM is driven by the scope and opportunities appearing due
to abundance of data and the savings which can be achieved through efficient analysis of these data What data
should be transferred with its significance and most importantly what infrastructure is required internally and
between its partners is very important
Hypo 3- Supply chain integration and strategic partnering ndash
In SCM information sharing and operational planning are crucial for successfully integrated supply chain
CHAPTER 23 RESEARCH DESIGN
The study was conducted on part of Business Expansion plan of Automobile industry to expand their
existing Business On this part Exploratory Survey was conducted to know about Operatational Strategies of
automobile companies
This Market research is EXPLORATORY RESEARCH DESIGN Arguments in favors of EXPLORATORY
RESEARCH DESIGN is-
-It tests the Hypothesis examines the relationship and comes to a conclusion It test Hypothesis whether -
Is Automobile Companies using Network Planning
Is Automobile Companies using IT and Decision Support system
Is Automobile Companies Using Supply Chain Integration And Strategic Partnering
Findings and analysis are used for Decision making on account of Surveyed Data
11
In This type of Exploratory Research design involves Collection of Information from Secondary Data
In this Automobile Survey The whole study is Secondary data based oriented
a Secondary Data from Internet on Manufacturing Industries
b Journals on Cost reduction Techniques on manufacturing Industries
c Scholarly articles for brief about indian manufacturing industries
d Books on Operational management
e Review Articles on Supply Chain-Upstream and Down stream
f Study for Opeartion Research Techniques- Transportation Techniques
CHAPTER 24 Scope of the Study
Among the studys key findings are
Indian automobile and auto components industry is on a roll and there is an immense scope for management
for enhancing the supply chain of the sector India has become a favourable destination for foreign companies
to establish their facilities and form alliances with domestic companies Low cost of manufacturing
and conducive government support have been the major drivers for foreign companies investing in India
Indiarsquos large young population higher GDP growth and most importantly per capita passenger car penetration
is low at 85 car per thousand population which creates great opportunity for industry players to offer
an affordable four-wheeler alternative to the two-wheeler customers According to Planning Commission of India
Indian automobile industry is expected to grow at CAGR of 15 over the next five years The Indian economy is
12
now gaining momentum in the world of free trade and liberal movements of goods and services between
countries Therefore efficiency in supply will be critical for Indiarsquos automobile success
NEED FOR MATERIALS-SYSTEMS APPROACH
Improved materials and materials processing can and must play a large role in generating productive and effective
responses to the forces that will drive the automotive industry in the future However these forces often pull in
diverse directions when specific technological actions are considered For example aluminum alloys can be used
to reduce vehicle weight thereby reducing emissions and improving fuel economy but the added materials costs
currently offset these advantages for many applications As a result steel is still the major material of choice for
automobile construction today and will be difficult to supplant for the foreseeable future
Indiarsquos process-engineering potential can be utilised for redesigning of manufacturing
processes to make them more labour intensive and less capital intensive which will enable the MNCrsquos to reduce
their overall costs substantially For instance de-automating of the production processes which are applied in
Western countriesrsquo factories can reduce the overall manufacturing cost of some components by up to 20
In case of product engineering India has emerged as a leading destination in the world
Indiarsquos strength is in its design which helps in reducing costs For instance redesign of the Maruti Altorsquos steering
system has cut down its weight by 15 India with its skilled engineers can design a product very fast which in
turn reduces its development cost and lead times For example an Indian supplier took six months to design a
steering system for an automaker It took more than four years to develop similar system with suppliers in the
other low-cost countries Several automobile manufacturers have already set up their auto component facilities in
India
13
CHAPTER 25 Limitations
For Automobile Study Primary Data varies wrt Secondary Data on account of theoretical practices in field then
practical theories
With increasing disposable incomes and ever-growing burden on the public modes of transport the Indian
passenger car industry is heading for a bright future provided car manufacturers offer a world class cars that give
value for money use novel marketing concepts to entice potential buyers and offer good after-sales service
Demand for passenger cars in FY2002 is projected at approximately 970755 units while production is expected
to reach 1210000 units The year is likely to witness a spurt in exports due to excess supply and liberalization of
export policy by the government
Some of the future strategies that need to be addressed while entering in to Indian small car market include the
redesign of the vehicle to suit the Indian road conditions and to develop aggressive marketing strategy to counter
the cost advantage enjoyed by dominant players like Maruti due to high capacity utilization With growing
number of two wheeler owners opting for used cars vehicles with higher resale value and excellent service
network are likely to account for a major market share in the near future Moreover the introduction of Euro III
and Euro IV norms in the near future is likely to increase the scrapping rates of cars
Exports are likely to increase in the near future with the entry of international car giants like Daewoo Hyundai
Honda Siel GM and Ford that intend to use India as a manufacturing production base
14
Chapter 3 CRITICAL REVIEW OF
LITERATURE
15
CHAPTER 3 CRITICAL REVIEW OF LITERATURE
A just released customer research study titled Customers Say What Companies Dont Want to Hear throws a
bucket of ice water in the face of some core business management tenets mdash plus a number of keystone principles
of the marketing advertising and customer relationship management (CRM) industries
Greenberg adds Customers Say What Companies Dont Want To Hear proves a mission-critical strategic point
Businesses need to rethink their logic and develop new operating models based on customer centric behaviors and
valuations
Commenting on the findings Paul Greenberg author of the industry best-seller CRM at the Speed of Light
Customer Strategies for the 21st Century says Lee and Mangen have verified and amplified with hard data
the growing perception that the new breed of customer is here to stay and businesses need to react mdash or risk their
very existence
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 While a top manager should be the ideal customer he
should also be the greatest critic of his companys products If the CEO compromises or is only looking at the
margins then even if he is successful the companys success will be short lived
- Ratan Tata the Chairman Tata Group
16
Chapter 31 Automobile Market Overview
The domestic automobile market has been growing at 142 per cent CAGR over the past 4 years (2000-01 to
2004-05) while the auto components market has been growing at 192 per cent CAGR (2000-01 to 2003-04) The
industry (OEMs and suppliers together) contributed nearly 4 per cent to the countryrsquos GDP in 2003-04 The
automotive sector also offers significant employment opportunities It employs 045 million people directly and
around 10 million people indirectly
The industryrsquos capabilities in design engineering and manufacturing have been recognised the world over and
most automotive majors are looking to increasingly source auto components from India
India is emerging as one of the most attractive automotive markets in the world and is poised to become a key
sourcing base for auto components The table below captures the highlights of the sector in India that illustrates
its growing significanceSee Annexure A amp B
Indian Automobile Industry
Largest three wheeler market in the world
2nd largest two wheeler market in the world
4th largest passenger vehicle market in Asia
4th largest tractor market in the world
5th largest commercial vehicle market in the world
17
Chapter 32 Automobiles - Domestic Performance
The production and domestic sales of the automobiles in India have been growing strongly While production
increased from 48 million units in 2000-1 to 85 million units in 2004-05 (a CAGR of over 15 per cent) domestic
sales during the same period have gone up from 46 million to 79 million units (CAGR 142 per cent) A positive
trend in the domestic market is that the growth has not been driven by one or two segments but is consistent
across all key segments Two wheelers which constitute the majority of the industry volume have been growing
at a rate of 143 per cent three wheelers at a rate of 14 per cent and passenger vehicles at a rate of 113 per cent
Commercial vehicles have been growing at a higher rate of nearly 235 per cent although from a lower base
Since nearly all macro-economic indicators ndash GDP infrastructure population demographics interest rates etc ndash
are showing a favourable trend the domestic market for automobiles in India is expected to continue on its
growth trajectory
Chapter 33 Exports of automobiles from India
While the domestic sales of automobiles have been increasing at a significant rate exports have taken a quantum
leap in recent years The exports of automobiles from India have been growing at a CAGR of 39 per cent for the
past four years Exports growth has been spearheaded by the passenger vehicle segment which has grown at a
rate of 574 per cent
As a result the share of passenger vehicles in overall vehicle exports has increased from 18 per cent in 1998-99 to
26 per cent in 2004-05 Europe is the biggest importer of cars from the country while predominantly African
nations import buses and trucks The Association of South East Asian Nations (ASEAN) region is
the prime destination for Indian two wheelers
18
Chapter 34 REVIEW OF THESIS DONE
This is easy to understand because the per capita disposable income of the people has gone up remarkably Over
the last five years per capita personal disposable income has gone up by around 8 which has increased
purchasing capacity of the people in the country Other factors have also contributed to this high growth in Indian
automobile sector These include lowering age of first car users shorter replacement cycles rising duel income
families nw technology which is lowering cost of ownership low car penetration in the country and most
importantly growing steel production in the country In addition wide variety and easily available financing
options are also some of the major reasons for surge in demand for automobiles in India
Global automobile manufacturers are consistently streamlining their business process by outsourcing their non-
core activities to low-cost countries like IndiaGlobal automobile manufacturers are under tremendous pressures
to innovate their manufacturing process and at the same time to reduce costs In view of the present global
competitiveness they must not only develop new features to strengthen their customer requirements but also
follow the environmental and safety standards In addition the base price of a car is expected to remain same over
the next decade As a result companies are forced to source more components from low-cost countries like India
According to Mckinsey global outsourcing of automobile and auto components would reach US$375 billion by
2015 from US$65 billion in 2002 India has plenty of scope to garner this potential According to the management
consulting firm India has the potential to notch this opportunity and reach up to US$25 billion to emerge as
major sourcing destinations along with China Mexico and Thailand Besides low cost Indias auto components
industry has the major advantage of enormous skills in process product and capital engineeringmdashits excellent
manufacturing history and good education system
19
Human beings think our way is the best but at Toyota we are told we have to always change We believe there is
no perfect way so we continue to search The goal is to break the current condition through Kaizen
- Shoichiro Toyoda Chairman Toyota Motor Corporation in December 2000
When Kaizen is applied to the workplace it means continuous improvement for - managers and workers Thus
Kaizen involves everyone in an organization to make improvements without large capital investments It can be
seen as a culture of continuous sustained improvement focusing on eliminating waste in all systems and
processes The Kaizen strategy begins and ends with people With Kaizen an involved leadership guides people
continuously to improve their abilities to meet high quality expectations low cost and on-time delivery which in
turn helps the organization gain a competitive edge
The production divisions council which checked the plants objectives occasionally modifying them taking into
account the companys profit targets replaced the production allowance councils After approval these objectives
became the Kaizen norm of each plant in terms of production efficiency The method of determining the
production efficiency was altered to make it less constrained as the standard time was fixed by measuring the time
really required for workers operations whereas earlier standard time was fixed on the basis of the best standard
time marked in the past
20
Chapter 4 Industry Profile
21
CHAPTER 4 Industry Profile
The Trans-nationals were also serious about developing vendors in India India is
bound to become an important destination for the global auto industry It took the financial turmoil in South East
Asia and the slowdown in the Chinese auto market to reinforce the targeting to Indian Market The new interest in
the small car segment also reflects certain amount of bullishness on the part of auto manufacturers about India
Despite projected over capacities--and current losses carmakers continued to queue
up their investments for small car segment To day there are 10 global auto majorsmdashincluding the $13-billion
Suzuki Motor (Japan) the $65-billion Daewoo (South Korea) the $147-billion Ford (US) the $47-billion Fiat
(Italy) and the $168-billion General Motors (US) operating in Indian Market
Chapter 41 The Pre 1997 Automobile Market
As late as 1997 the auto market in India was clearly segmented At the entry level
were MULs 800-cc car--priced between Rs 210-lakh and Rs 245 lakh--and the Omni at Rs 175 lakh At the
next level were the 993-cc Zen--priced at Rs 370 lakh--and the 999-cc Fiat Uno (Rs 362 lakh) Then came the
1300-cc Esteem models--priced between Rs 469 lakh and Rs 595 lakh--the 1498-cc Cielo (Rs 620 lakh) and
the 1598-cc Opel Astra (Rs 752 lakh) followed by premium cars like Mercedes-Benzs E-220 (Rs 22 lakh)
Changing Lanes
Two events have upset the equations in the price-segmented car market Daewoo has
Changed the lanes with the Cielo which is now priced at Rs 490 lakh and competes with the Zens top-end
model (Rs 440 lakh) and the Esteems lower-end version (Rs 469 lakh) Ceilo has created a new value segment
where the price is not proportionate to the size Daewoos strategic response has very clearly redefined
differentiation from price or size to value
22
Hyundai Motors India a subsidiary of the $27-billion Hyundai of South Korea launched
its 999-cc Santro at the Auto Expo 1998 in Delhi The model comes in five variants with the non-air-
conditioned manual transmission model priced at Rs 280 lakh and the semiautomatic air-conditioned GLS
model priced between Rs 315 lakh and Rs 4 lakh ClearlyHyundais strategy is aimed at taking on the market
leader Maruti Udyog Limited But by pricing the deluxe model at Rs 4 lakh it is also bridging the gap between
the small and the middle car segments At present Marutirsquos Esteem LX is priced Rs 70000 more than the
Santro GLS while the Cielo is priced Rs 90000 more
The further entry of new players will only blur the segments New entrants will be
involved in price war to find a foothold in the Indian market Few of the examples include
TELCOs positioning of its 1400-cc Indica car--launched in November 1998 and priced close to Marutirsquos 800-cc
model as a small carand Honda sneaking its 1300-cc City into the segment vacated by the Cielo although it is
an accepted fact that pricing or positioning cannot be done in isolation In a crowded market that must depend on
the available strategic opportunities
By creating new segments companies can broaden their market base increase
capacity utilization levels pre-empt competitors market entry moves and importantly lower costs While Maruti
did that by launching three versions of the Esteem TELCO accomplished it by using a common platform for the
Sumo the Estate and the Sierra models Hyundai is also planning to come to the market with five variants in near
future At high volumes costs can be lowered by more than 20 per cent across variants due to experience curve
effect
Configuring the sticker price for a car in the market today is no more a functional
decision It has become a strategic decision as it identifies the key segmentrsquos response
23
elasticity to the market offer The two key inhibiting factors for the poor response to the auto war fare in Indian
Car Market are basically the low per capita income at $350 (Rs 14000 at current prices) and the high
manufacturing costs A large part of the population expected to graduate from two wheelers to four wheelers has
not responded as they were supposed to during this period of time The domestic auto giant Maruti Udyog
limited still forces the new players to benchmark themselves against its products which roll out from a
depreciated yet high-volume plant It enjoys the fast mover as well as the cost advantage with the higher capacity
utilisation that helps him to cut costs across as more cars you make the cheaper they get
With the worldrsquos second largest and fastest-growing population there is no doubt that Indiarsquos potential in both
economic and population terms and the effect it will have on the auto industry in the next years During the last
two years export from this sector has grown significantly owing mainly to the export of cars and two-three-
wheelers
The industry is characterized by a very high percentage (75) of production in the 23 wheeler sector India ranks
as the largest manufacturer of motorcycles and second largest in manufacturing of scooters in the world India
today is also the second largest manufacturer of tractors as well The industry has intense forward and backward
integration
The Indian automotive industry had experienced an extraordinary growth due to the improvement in the living
standards of the middle class and an increase in their disposable incomes Moreover the liberalization steps such
as relaxation of the foreign exchange and equity regulations reduction of tariffs on imports and refining the
banking policies initiated by the Government of India have played an equally important role in bringing the
Indian Automotive industry to great heights
It is estimated that the sale of passenger cars have tripled compared to their sale in the last five years Thus the
sale of cars has reached a figure of 1 million users and is expected to increase further Its also to be noted that the
24
demand for luxurious models SUVs and mini-cars for family owners have shot up largely due to increase in the
consumers buying capacity
The Indian automotive market
India country fact file 2005
Population 1 080 264388
Per Capita GDP (PPP) $3400
GDP Growth Rate 71
Total automotive sales 2005 1 439604 (889333)
Total automotive production 2005 1 643460 (1 000567)
Market growth 2005 vs 2004 70 (64)
Best sold model PC segment 2004 Maruti Alto (168)
Best sold model LCV segment 2004 Maruti Omni (213)
(passenger cars) (market share in segment)
Source httpwwwsegmentycomIndiahtm
Chapter 42 The Protected Indian Domestic Automobile Sector
MUL which set up shop in 1984 had 10 long years of relative protection to emerge as a formidable competitor
with high volume and a strong brand image in the mind of Indian customers When the industry was deregulated
in 1993 the cost barrier had become so high that new companies could not dare to look at the small car segment
25
Instead they settled for the mid-size segment where both volumes and margins were expected to be high
However a shakeout in the Indian mid-size car segment the slowdown in international auto sales pushed
transnational auto majors into India which have now turned the tide against MULThe present generation small
cars launched recently are more contemporary in terms of both design and technology while Marutis small-car
technology is at least a decade old
Keeping the future growth potential of Indian market in mind the auto majors are prepared to bear losses for the
next 10 years This will help them to gain a good market share the long run and provide breathing space to
counter the strategic moves of the leader Hence the narrowing price differential between the old and the new
small cars is the first call of the auto majors against Maruti in Indian Market If Maruti has to try and match the
features of new generation small cars it would mean additional costs On the contrary if Maruti decides to
hold its price line and add new features it could translate into losses or at least low profits But MUL can still
bank on at least two Suzuki models the proposed 657-cc Cervo C and the current 996-cc Wagon R to battle its
rivals in the future
Chapter 43 The Advent of the Auto Majors
Besides bracing up for losses in the initial years auto majors like Hyundai and Daewoo are banking on exports
too At the moment export may look unattractive because of the South Asian meltdown but in the long run low
production costs and component-manufacturing skills will make India- made cars competitive at global market
place Hence they are looking India as a production base to cater to the growing Asian market by way of
outsourcing from Indian manufacturing base However many a hurdles they have to cross on the journey to
profitability
26
The investments necessary for a large plant are simply huge Daewoo has so far sunk Rs 2700 crore in a
120-lakh-unit-a-year plant Unlike China which has restricted the number of companies India has followed an
open door policy for car manufacturers which has resulted in emergence of fragmented markets with distributed
capacity
An Original Equipment Manufacturer (OEM) needs a minimum economic size of 150 lakh cars a year to attract
vendor interest Daewoo was able to slash the Cielos price as it is cheaper to import components because of the
devaluation of the South Asian currencies The auto majors are lobbying with the government to ease the strict
indigenisation norms in the new automobile policy so that they can import the components from other countries
This will help them to cut the prices and to go head on the market leader particularly in a price responsive market
like that of small car segment
The other argument is that with the given import duty of 103 per cent on Completely Knocked-Down Kits
(CKDs) which is the same as that on Completely Built-up Units (CBUs) and 68 per cent on components the
imports will become costlier and compel companies to localize their manufacture The exposure to currency
fluctuations which crippled the four Japanese light commercial vehicle projects in the late 1980s is also minimal
when a company localizes component manufacture
Besides lean manufacturing techniques like Just-In-Time (JIT) are possible only when the supplier is located
close to the manufacturing unit If Maruti is a success story it is only because it indigenised 85 per cent of its
components within five years of going on-stream
Then theres the question of servicing the replacement market for spares Customers typically expect
components to be available locally and at competitive prices Imports cannot guarantee that but it is a
27
tremendous job to localize components at the right quality and price given the supplier problems in prevalent in
India
An Original Equipment Manufacturerrsquos competitive advantage lies in its marketing skills Having achieved price
and technology parity it can easily woo the consumer with attractive financing schemes and superior after-sales
service Nudged by the competition most auto players have a clutch of schemes to offer Daewoo Motors India
provides interestfree car finance Ford Motor and General Motors have slashed interest rates MULs joint
venture finance company Maruti Countrywide is offering loans at 1350 per cent when the prevailing lending
rate is 17 per cent and above
Chapter 44 The After Sales Service Scenario
After sales service for cars is as critical as showroom deals Maruti services its 2 million customers through an
army of 174 dealers spread across the country It will be impossible for a company to duplicate such
infrastructure particularly with investments in a metro-based showroom going up to Rs 4 crore Margins in
retailing are moving from actual sales to after sales service
The problem of price war is evident with Auto majors as much as with dealers In a bid to woo the customers
dealers particularly in non-prime locations are cutting their margins It will not be surprising if single-brand
dealers eventually turn into multi-brand sellers in future
Doing so will benefit all the three constituents in the marketing chain the OEM the dealer and the buyer The
carmaker can expand his reach without expensive investment the dealer can increase his revenue and the
customer gets a variety of models and brands under one roof in future
The local partner will be the loser in this fierce battle Without the means to make either matching equity or
technological investment the Indian collaborator will be driven off the road
28
It has already happened to the Rs 166-crore DCM which tied up with Daewoo Motors and can happen to both
the Rs 1258-crore Hindustan Motors (Partner General Motors) and the Rs 360657 crore Mahindra amp Mahindra
(Partner Ford Motor)
So they are reconciled to adopting a minority role or becoming auto component vendors This list includes
Siddharth Shrirams Rs 430-crore Siel (Partner Honda) the Kirloskars (Partner Toyota) and the Munjals of the
Rs 2000-crore Hero Group (Partner BMW) And the evidence is compelling eg Hindusthan Motors has a
passive role in its joint venture with General Motors although the Opel Astra is manufactured at HMs Halol plant
in Gujarat The same can be forecasted about Mahindra and Mahindrarsquos joint venture with Ford Motor What can
prolong the life of the joint venture is distribution muscle as it will take at least five years for a transnational auto
major to build a strong distribution channel in this country
By all accounts the auto industry is headed for a glut With an estimated demand for cars to touch 9 lakhs in
2001-2002 the installed capacity will rise to 16 lakhs So the current growth rate in Indian market is not
sustainable There will be at least two years of stagnant or declining demand before the resumption of the growth
trendThere is a projected demand of 1-lakh cars in the mid-segment alone by 2001-2002 And the car numbers
will add up to around 6 lakh a year That will engender a shakeout which is already afoot in the other Asian
markets For instance poor off -take and a consequent build-up of car inventories has led to a fierce price-war in
China
Chapter 45 Market Potential of Indian Automobile Segment
The demand for the small car will continue to drive growth for the next five years Of the total sales of Maruti in
2000-2001around 85 per cent were small cars The Esteems sales dropped in the same period where as the small
cars drove MULs sales So demand for small cars will leap only if certain conditions are fulfilled
29
Rise in the Income Levels In the US auto demand rises by 4 per cent for every 1 per cent increase in the real
Gross Domestic Product but this is irrelevant for India as only the top 150 per cent of the population
can afford a car The demand can shoot up if the income levels of the top 5 per cent continue to rise in future
Level Of Motorization It is stagnant at 170 cars per 1000 people for decades However in the post-liberalization
period the motorization level has leaped to 370 cars per 1000 Although it is still lower than the levels in the
developed markets motorization is bound to rise further in the coming years
Chapter 451 Vehicle Prices
Falling imports and excise duties coupled with competition will continue to boost demand and
the prices are likely to fall further at least in the short run
Chapter 452 Consumer Finance
Over 60 per cent of customers opt for consumer finance That figure could go up if interest
rates continue to fall
Chapter 453 Infrastructure
Traffic congestion and bad roads could deter potential buyers from going for small cars
particularly in small cities of India The future is not very heartening in this aspect
Chapter 454 Product Availability
As manufacturers shift their attention to the small car more and more people will be able to
afford it and demand will only rise in the future period of time
30
Chapter 46 The Future-Indian Automobile
There is a sharp contrast in the buying behavior of Indian Consumer compared to their western counter parts yet
there is no doubt that Indian car market is going to increasingly resemble the latter In the West the industry is
likely to be dominated by three or four major players With a likely demand of 11 lakh cars by 2006 there will be
a few niche players like BMW Mercedes-Benz and Audi with luxury cars to offer Unless car manufacturers
have a large range of vehicle to offer they will be unable to subsidize their costlier models
The market will consolidate to few segments The carmaker has to make diverse models based on diverse and
flexible platforms Products like the stripped-down economy car the sports utility vehicle or the van should be
built on the same platform For the price-sensitive customers there can be a no-frills version a loaded version for
the middle customer and luxury car manufacturers can target the high-end customers
The fortunes of the autoobile industry will continue to hinge on the large price sensitive customers who will
graduate to the higher end of the market over a period of time
Until then the small car will continue to drive demand and most of the car-manufacturers are
gearing up for this eventuality
31
Chapter 5 Company Profile
ldquoTata Motorsrdquo
32
CHAPTER 5 Company ProfileTata Motors
Tata Motors previously known as Tata Engineering and Locomotive Co Ltd (TELCO) is one of the largest
companies in the Tata Group and one of Indias largest business houses Tata Motors is Indias leading
commercial vehicle manufacturer and the third largest passenger car manufacturer The company is the sixth
largest truck manufacturer in the world Tata Motors recently received the Balanced Scorecard Collaborative Hall
of Fame Award for having achieved a significant turnaround of its overall performance A comprehensive quality
improvement and cost cutting initiative in September 2000 has played an important role in the companys
turnaround from a loss of Rs 500 crores in the year ended March 2001 to a profit of Rs 28 crores in the first
quarter of 2002-2003
Tata Engineering and Locomotive Company (TELCO)
Chapter 51 History amp Evolution
Tata Engineering and Locomotive Company Ltd popularly known as Telco was incorporated in 1945 to
manufacture steam locomotives In 1954 the company diversified into automobile manufacturing through a
collaboration with Daimler-Benz for the manufacture of commercial vehicles By the time the collaboration ended
in 1969 Telco had not only become an independent producer of medium commercial vehicles (MCVs) with
negligible import contentbut had developed the capability of designing and developing such vehicles The
Company progressively widened its product range to cover heavy commercial vehicles (HCVs) and light
commercial vehicles (LCVs) implementing one expansion program after another
To sustain the unrelenting pace of its growth Telco added machining press and assembly
33
capacities set up its own forge and foundries and virtually created the countryrsquos automobile ancillary industry
The Company even developed facilities for designing and manufacturing state-of-the-art machine tools material
handling equipment dies and fixtures To accommodate the Companyrsquos growing activity base a large modern
complex was set up at Pune in western India and a new plant became operational at Lucknow in the north of the
country
To provide a business focus for the Companyrsquos main activity areas Telco has created twobusiness unitsrsquo -
Automobiles and Construction Equipment ndash both of which have notched up record-breaking results
Telco today has a domestic market share of 68 in the MCVHCV segment 64 in the LCV segment and 32
in the multi-utility segment Apart from commercial vehicles which range from 1 ton to 35 tons GVW Telcorsquos
automobile products also include passenger vehicles and an extraordinarily popular multi-utility vehicle All these
products have been developed inhouse by the Companyrsquos own RampD Center This Center is equipped with the
latest computeraided design hardware and software enabling the company to respond quickly to changing
customer needs both in India and abroad
Telco has been exporting its products since 1969 and currently exports about a tenth of its
output Export markets include the Middle East Africa and Southeast Asia as well as
developed countries in Europe like France UK and Spain It is intended that exports should account for 20 of
the automobiles sold by the Company
Telcorsquos second line of business Construction Equipment has also grown rapidly and the
Company currently commands a 61 share in the excavator market and 90 in the crawler cranes market in
India The hydraulically operated construction equipment made by the company is in collaboration with Hitachi
34
Construction Machinery Limited of Japan There are ambitious plans for widening the range of excavators made
by the company and for adding new lines of construction equipment A recent addition to the excavator range is
Backhoe Loader
Telco is one of Indias largest private sector companies With a turnover of Rs 6637 billion it is the countrys
leading commercial vehicle manufacturer and the worldrsquos sixth largest automobile company
The widely successful Tata Indica which is Euro 1 and 2 compliant is the countryrsquos first
indigenously designed developed and manufactured passenger car The company also
makes several other passengers vehicles including the Safari the Sumo the Sierra the Tata Estate and the
Tatamobile pick-up
The companyrsquos products have received wide acceptance not only in India but also in markets in the Middle East
Asia Africa and Europe
Chapter 52 Areas of business
The company manufactures medium heavy and light commercial vehicles multi-utility
vehicles and passenger cars It also makes general and special purpose machines for
automotive applications at its machine tool division These include NCCNC horizontal and inline machining
centers flexible manufacturing systems CNC cylindrical grinding machines and robots for welding cutting
painting and other applications
In 1999 the companyrsquos revenues from its four manufacturing plants at three locations in India were Rs 6637
billion ($15735 million) In 1998 they were Rs 7026 billion ($1893 million) (The average exchange rate in
1999 was Rs 4218 to one US dollar)
35
In the year ended 31 March 2000 the companyrsquos total exports were worth about Rs 50553 crore against about
Rs 60078 crore in the previous year
Locations
The companyrsquos manufacturing plants in India are at Jamshedpur in Bihar Pimpri and
Chinchwad near Pune in Maharashtra and Lucknow in Uttar Pradesh A fifth manufacturing facility is being set
up at Dharwad in Karnataka
Collaborations
The Company has technical tie-ups with
bull The Institute of Development in Automotive Engineering SPA Italy for assistance in
small car body design and styling
bull Nachi Fujikoshi Corporation Japan for robots for welding painting and other
automotive applications
bull Le Moteur Moderne France for the development of diesel and petrol engines for
passenger cars and
bull Robert Bausch GmbH Germany for application work on the engine management
system for 4 PL petrol engines
36
Chapter 53 Tata Motors ndashSuccessful Car Indica
TELCO launched Indica when the TATA group was in red Telco chairman Ratan Tata said that the 1400 cc car
Indica would drive the company out of the red
Tata while talking to reporters at the IETF 99 in a videoconference from Mumbai said that the overwhelming
response of over 125 lakh initial bookings for the Indica had come as a surprise It seems we touched the
national chord somewhere as people responded to the fact that this is the first Indian car said Tata Indica is not
the end of the road for Telco when it comes to passenger cars It is just the beginning as there are more to come
said Tata adding that the company was working on another mid-size car after Indica
Telco had to produce 60000 cars a year to break-even The group created two
organizations within Telco one dealing with commercial vehicles and the other with passenger cars The
company under took a major restructuring exercise whereby the passenger car and commercial vehicles divisions
would function as two separate business units Telco had a strategy to go for exports after addressing the initial
requirements of the domestic market
Awards and Recognition
In May 2000 Tata Engineering and Locomotive Company Ltd (Telco) won a national award for successful
indigenous technology used in the Indica car project The award titled National award for successful
commercialization of indigenous technology by an industrial concern for indigenous development and
commercialization of Tata Indica car was presented by the minister for human resource development science and
technology and ocean development
Dr Murli Manohar Joshi
37
In November 1999 Telco was awarded the Department of scientific and industrial research
national award for indigenous design of the Tata Indica It was the first company in India to implement stringent
emission norms well ahead of the mandate dates
Promotions
The Indica advertising made interest for the car go into overdrive The campaign revolved around the premise that
the Indica would not just meet peoples expectations it would exceed them Every advertisement has a story to
tell
Pre launch Campaign
The Indica campaign began in the right earnest in December 1998 It was advertised as the launch of a car that
will spell doom for the small cars It was directly aimed at Maruti 800 The ad line used in the first campaign was
ldquoCar makers will suddenly remember all the thing they forgot to give yourdquo This hinted that Indica would have
more features than any of the existing small cars Indica used the catch lines like ldquo More car per Carrdquo ldquoMore
dreams per carrdquo to suggest that Indica will be bigger in size to the existing small cars yet be in the small car
category It competes with the mid size cars on size and give them a run for their money with its cheaper price
tag
At the launch of the car TELCO claimed that the people would never have to suffer from a small car again and
that the n end of the year (1998) would be the end of the small cars
Launch Campaign
The launch campaign of Indica focussed on the many advantages that it offered over other cars in the same
segment It promised the customers more than the current offerings Its first advertisement carried the following
catch line ldquo50cc moped 100cc bike 800cc car Time you asked for morerdquo
38
It then concentrated its efforts on criticizing the negative aspects of Maruti 800 and highlighted how Indica has
removed those very defects and presented a very sophisticated and modern car to the Indian customer It even
pointed out that the shape of Maruti was very unconventional and that people would prefer the shape of Indica to
Maruti 800 The advertisement read ldquo Box shaped bubble shaped wedge shaped But then Gentlemen prefer
curvesrdquo
The launch campaign also focussed on the roomy interiors of Indica a feature not offered by Maruti at that point
of time Also the expertise of TATA in diesel engines and fuel efficiency of these were the highlight of the launch
campaign of Tata Indica
Post Launch Campaigns
While the Launch campaign focussed on the features of Indica the post launch advertisements focussed on the
superior after sales service and longer warranty periods offered by Indica
Telco was the first company to offer an 18-month warranty period on engine parts The most famous line used
during this campaign was ldquoWe could go on and on about service or give you the one word summary TATArdquo
While their main adversary was the Maruti 800 Telco felt that it could also tap the mid size segment using the
selling point of space given by Indica They carried a campaign which said ldquoForget small cars we even make big
cars feel smallrdquo
It then went on to highlight the fact that Indica was Euro II compliant even before it was legally binding upon car
manufacturers to do so It also highlighted the concrete wall safety test that Indica withstands and tried to
showcase the car as a safe and strong car
39
Chapter 6 COST REDUCTION TECHNIQUES
IN TATA MOTORSrsquoS INDICA
40
Chapter 6 Tata Indica - The Making Of The Small Car
with objective of minimizing costs
The research provides an understanding of the issues concerning the supply chain management system at
Telco in regard to its small car Indica It outlines how Telco built the supply chain for the car by leveraging its
existing competencies and how it transformed itself from an integrated truck manufacturer to an automobile
integrator and from a product-centric company to competence- centric company The case discusses various
components of the supply chain and emphasises how Telco orchestrated them with the objective of minimizing
costs
ldquoTelcorsquos 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 comerdquo
- Business India March 22 1999
In the early 1990s Telcorsquos Chairman Ratan Tata (Tata) was flirting with the idea of developing a small
car By mid-1994 a rudimentary design was in place In 1995 Telco announced that it planned to build a car
which would be priced close to the Maruti 800 shaped like the Zen and spacious as an Ambassador
Producing the new small car ndash Indica ndash represented a different kind of challenge for Telco Should Tata succeed he
would change the face of Telco As a truck-maker Telco was so integrated that it even made it own castings and
forgings As an automaker it would have to focus on the value chain that stretched between raw materials and after-sales
41
service as well as assembling the parts into the complete automobile
For its new venture Telco outsourced 80 of the components (1200 of its 1500-plus parts) from 200-odd vendors To
develop the Indica Telco had to combine the learnings from its predecessors with its own unique supply chain
management strategies to ensure a sustainable low-cost platform
By learning to build and manage a supply chain it would set the ground for leveraging the capabilities of the
automotive component-manufacturers who already operated in its target markets In other words Telco planned
to use its skills as an integrator--bringing together products and services from both upstream and downstream
operations and packaging them for the customer under a brand name in its new venture
Globally a car could be built in 48 months with an investment of US $ 3 billion (Rs 1275 billion) Indica was
built in 31 months on a budget of Rs 17 billion This seemed to have been possible by focussing on the supply
chain
Chapter 61 THE OUTSOURCING STRATEGY
For Telco outsourcing seemed to be one of the most difficult aspects of producing the Indica Unlike global
automobile majors Ford Motors or General Motors which had a global vendor-base that could be replicated on
a smaller scale in India Telco had to create a vendor-base from scratch Moreover it did not have the expertise
either to design a car or to build an engine for it
Against this background Telco had to take its primary lsquomake-or-buyrsquo decisions for the key inputs-design
engine and transmission Telco decided to shop globally for the best deals and use its own expertise to make
42
whatever modifications were needed
(Refer Table I for the components outsourced by Telco)
TABLE I
OUTSOURCING THE COMPONENTS
Components Supplier
5 door hatchback IDEA Italy
Engine Institut Francais du Petrol
France
Assembly Line Nissanrsquos Plant Australia
Presses Mercedes Benz
Pistons and Piston rings India Pistons
Electrical components and fuel injection
systems Lucas-TVS
Steering systems Rane TRW Steering Systems
Clutch facings and rear (drum) brake linings Sundaram Brake Linings (SBL)
Seating Systems Tata-Johnson Controls
Radiators Tata-Toyo
Rear view mirrors Tata-Ficosa
Front and rear bumper dash-board inside
trims Tata-Auto Plastics
Air conditioning kits Subros Ltd
Wind screens and windows Asahi Glass
Fuel lines Imperial Auto
Differential assemblies Sona Steering
43
Sheet metal items JBM Tools
Source Business Today March 22 1999 and December 7 1999
Telco turned to the Italian company IDEA for the product-design It bought the engine from the Institut
Francais du Petrol of France and applied its engineering skills to adapt the engine requirements The transmission
was developed in-house at its Engineering Research Centre (ERC) at Pune Of the Rs 25 billion it spent on
designing the Indica the major share went in buying design tools and training its engineers in new skills Telcorsquos
engineers traveled regularly to the sites of its technology suppliers to receive training before the actual delivery
of the machines
Telco also outsourced its assembly line from Nissanrsquos plant in Australia for just Rs 900 million Telco
transplanted it at its factory at Chikli near Pune which was newly set up for Indica A new assembly line of the
same proportions would have cost at least Rs 4 billion Again of the 3 presses for the Indica only 1 was new
acquired for Rs 900 million while the other 2 were bought second-hand from Mercedes-Benz and modified to
suit the Indica
Telcorsquos engineers and the ERC did the application engineering programming installation and commissioning to
save around 45 of the technology costs The tooling for the car too was supplied internally by Telcorsquos machine
tool division To manage the supply chain better Telco kept the number of suppliers for Indica to just 200 as
compared to about 1000 for trucks Most of the parts were supplied by Telcorsquos traditional suppliersmdash TVS Rane
Group and Tata Auto Component Systems (Taco) who were single source suppliers Pressed parts assemblies
and drive shafts were sourced from single vendors
44
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
8
Chapter 2 Research Methodology
CHAPTER 21 Primary Objective
The founder of the Japan-based Kaizen Institute Masaaki Imai defined Kaizen in his book Kaizen - The Key to
Japans Competitive Success as Kaizen means continuous improvement in the personal life home life social
life and working life Automobile companies applied Kaizen for continuous improvement in their operations
When Kaizen is applied to the workplace it means continuous improvement for - managers and workers Thus
Kaizen involves everyone in an organization to make improvements without large capital investments It can be
seen as a culture of continuous sustained improvement focusing on eliminating waste in all systems and
processes The Kaizen strategy begins and ends with people With Kaizen an involved leadership guides people
continuously to improve their abilities to meet high quality expectations low cost and on-time delivery which in
turn helps the organization gain a competitive edge
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
- Jay Wetzel Vice President and General Manager GM Technical Center commenting on the benefits
derived from CADCAMCAE tools in 200
To Study Operations of Automobile Company(Tata Motors)
(a) Study of Effective Cost Reduction techniques in Supply Channel of distribution Network
9
(b) Study of Effective Cost Reduction techniques in Procurement of Raw Materials
(c) Study of Effective Cost Reduction techniques in Operational Management
According to the Council of Logistics Management Supply Chain Management ldquothe process of planning
implementing and controlling efficient and cost effective flow of materials in-process inventory finished goods
and related information from point-of-order to point-of-consumption for the purpose of conforming to customer
requirements as efficiently as possiblerdquo The automobile industry has undergone significant structural and other
changes in the last decade or so In view of the present globalisation implementation of lean production and the
development of modularisation have changed the relationships between automobile assemblers (OEMs) and their
suppliers especially those in the first tierStiff competition among manufacturers will result in more mergers or
acquisitions The challenges automobile manufacturers and suppliers face include improving quality meeting cost
reduction targets and developing time to market
CHAPTER 22 Hypothesis
Is Automobile companies are following certain guidelines for Operations or not
Hypo 1- Network Planning ndash This is one of the most important issues for SCM
Determination of production requirements and inventory levels at the vendorrsquos facility for each product and
development of transportation flows between these facilities to the warehouses in a best possible way to reduce
total production inventory and ransportation costs with fulfilment of service level requirements
10
Hypo 2- IT and Decision Support Systemndash
This is another important challenge for SCM Today SCM is driven by the scope and opportunities appearing due
to abundance of data and the savings which can be achieved through efficient analysis of these data What data
should be transferred with its significance and most importantly what infrastructure is required internally and
between its partners is very important
Hypo 3- Supply chain integration and strategic partnering ndash
In SCM information sharing and operational planning are crucial for successfully integrated supply chain
CHAPTER 23 RESEARCH DESIGN
The study was conducted on part of Business Expansion plan of Automobile industry to expand their
existing Business On this part Exploratory Survey was conducted to know about Operatational Strategies of
automobile companies
This Market research is EXPLORATORY RESEARCH DESIGN Arguments in favors of EXPLORATORY
RESEARCH DESIGN is-
-It tests the Hypothesis examines the relationship and comes to a conclusion It test Hypothesis whether -
Is Automobile Companies using Network Planning
Is Automobile Companies using IT and Decision Support system
Is Automobile Companies Using Supply Chain Integration And Strategic Partnering
Findings and analysis are used for Decision making on account of Surveyed Data
11
In This type of Exploratory Research design involves Collection of Information from Secondary Data
In this Automobile Survey The whole study is Secondary data based oriented
a Secondary Data from Internet on Manufacturing Industries
b Journals on Cost reduction Techniques on manufacturing Industries
c Scholarly articles for brief about indian manufacturing industries
d Books on Operational management
e Review Articles on Supply Chain-Upstream and Down stream
f Study for Opeartion Research Techniques- Transportation Techniques
CHAPTER 24 Scope of the Study
Among the studys key findings are
Indian automobile and auto components industry is on a roll and there is an immense scope for management
for enhancing the supply chain of the sector India has become a favourable destination for foreign companies
to establish their facilities and form alliances with domestic companies Low cost of manufacturing
and conducive government support have been the major drivers for foreign companies investing in India
Indiarsquos large young population higher GDP growth and most importantly per capita passenger car penetration
is low at 85 car per thousand population which creates great opportunity for industry players to offer
an affordable four-wheeler alternative to the two-wheeler customers According to Planning Commission of India
Indian automobile industry is expected to grow at CAGR of 15 over the next five years The Indian economy is
12
now gaining momentum in the world of free trade and liberal movements of goods and services between
countries Therefore efficiency in supply will be critical for Indiarsquos automobile success
NEED FOR MATERIALS-SYSTEMS APPROACH
Improved materials and materials processing can and must play a large role in generating productive and effective
responses to the forces that will drive the automotive industry in the future However these forces often pull in
diverse directions when specific technological actions are considered For example aluminum alloys can be used
to reduce vehicle weight thereby reducing emissions and improving fuel economy but the added materials costs
currently offset these advantages for many applications As a result steel is still the major material of choice for
automobile construction today and will be difficult to supplant for the foreseeable future
Indiarsquos process-engineering potential can be utilised for redesigning of manufacturing
processes to make them more labour intensive and less capital intensive which will enable the MNCrsquos to reduce
their overall costs substantially For instance de-automating of the production processes which are applied in
Western countriesrsquo factories can reduce the overall manufacturing cost of some components by up to 20
In case of product engineering India has emerged as a leading destination in the world
Indiarsquos strength is in its design which helps in reducing costs For instance redesign of the Maruti Altorsquos steering
system has cut down its weight by 15 India with its skilled engineers can design a product very fast which in
turn reduces its development cost and lead times For example an Indian supplier took six months to design a
steering system for an automaker It took more than four years to develop similar system with suppliers in the
other low-cost countries Several automobile manufacturers have already set up their auto component facilities in
India
13
CHAPTER 25 Limitations
For Automobile Study Primary Data varies wrt Secondary Data on account of theoretical practices in field then
practical theories
With increasing disposable incomes and ever-growing burden on the public modes of transport the Indian
passenger car industry is heading for a bright future provided car manufacturers offer a world class cars that give
value for money use novel marketing concepts to entice potential buyers and offer good after-sales service
Demand for passenger cars in FY2002 is projected at approximately 970755 units while production is expected
to reach 1210000 units The year is likely to witness a spurt in exports due to excess supply and liberalization of
export policy by the government
Some of the future strategies that need to be addressed while entering in to Indian small car market include the
redesign of the vehicle to suit the Indian road conditions and to develop aggressive marketing strategy to counter
the cost advantage enjoyed by dominant players like Maruti due to high capacity utilization With growing
number of two wheeler owners opting for used cars vehicles with higher resale value and excellent service
network are likely to account for a major market share in the near future Moreover the introduction of Euro III
and Euro IV norms in the near future is likely to increase the scrapping rates of cars
Exports are likely to increase in the near future with the entry of international car giants like Daewoo Hyundai
Honda Siel GM and Ford that intend to use India as a manufacturing production base
14
Chapter 3 CRITICAL REVIEW OF
LITERATURE
15
CHAPTER 3 CRITICAL REVIEW OF LITERATURE
A just released customer research study titled Customers Say What Companies Dont Want to Hear throws a
bucket of ice water in the face of some core business management tenets mdash plus a number of keystone principles
of the marketing advertising and customer relationship management (CRM) industries
Greenberg adds Customers Say What Companies Dont Want To Hear proves a mission-critical strategic point
Businesses need to rethink their logic and develop new operating models based on customer centric behaviors and
valuations
Commenting on the findings Paul Greenberg author of the industry best-seller CRM at the Speed of Light
Customer Strategies for the 21st Century says Lee and Mangen have verified and amplified with hard data
the growing perception that the new breed of customer is here to stay and businesses need to react mdash or risk their
very existence
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 While a top manager should be the ideal customer he
should also be the greatest critic of his companys products If the CEO compromises or is only looking at the
margins then even if he is successful the companys success will be short lived
- Ratan Tata the Chairman Tata Group
16
Chapter 31 Automobile Market Overview
The domestic automobile market has been growing at 142 per cent CAGR over the past 4 years (2000-01 to
2004-05) while the auto components market has been growing at 192 per cent CAGR (2000-01 to 2003-04) The
industry (OEMs and suppliers together) contributed nearly 4 per cent to the countryrsquos GDP in 2003-04 The
automotive sector also offers significant employment opportunities It employs 045 million people directly and
around 10 million people indirectly
The industryrsquos capabilities in design engineering and manufacturing have been recognised the world over and
most automotive majors are looking to increasingly source auto components from India
India is emerging as one of the most attractive automotive markets in the world and is poised to become a key
sourcing base for auto components The table below captures the highlights of the sector in India that illustrates
its growing significanceSee Annexure A amp B
Indian Automobile Industry
Largest three wheeler market in the world
2nd largest two wheeler market in the world
4th largest passenger vehicle market in Asia
4th largest tractor market in the world
5th largest commercial vehicle market in the world
17
Chapter 32 Automobiles - Domestic Performance
The production and domestic sales of the automobiles in India have been growing strongly While production
increased from 48 million units in 2000-1 to 85 million units in 2004-05 (a CAGR of over 15 per cent) domestic
sales during the same period have gone up from 46 million to 79 million units (CAGR 142 per cent) A positive
trend in the domestic market is that the growth has not been driven by one or two segments but is consistent
across all key segments Two wheelers which constitute the majority of the industry volume have been growing
at a rate of 143 per cent three wheelers at a rate of 14 per cent and passenger vehicles at a rate of 113 per cent
Commercial vehicles have been growing at a higher rate of nearly 235 per cent although from a lower base
Since nearly all macro-economic indicators ndash GDP infrastructure population demographics interest rates etc ndash
are showing a favourable trend the domestic market for automobiles in India is expected to continue on its
growth trajectory
Chapter 33 Exports of automobiles from India
While the domestic sales of automobiles have been increasing at a significant rate exports have taken a quantum
leap in recent years The exports of automobiles from India have been growing at a CAGR of 39 per cent for the
past four years Exports growth has been spearheaded by the passenger vehicle segment which has grown at a
rate of 574 per cent
As a result the share of passenger vehicles in overall vehicle exports has increased from 18 per cent in 1998-99 to
26 per cent in 2004-05 Europe is the biggest importer of cars from the country while predominantly African
nations import buses and trucks The Association of South East Asian Nations (ASEAN) region is
the prime destination for Indian two wheelers
18
Chapter 34 REVIEW OF THESIS DONE
This is easy to understand because the per capita disposable income of the people has gone up remarkably Over
the last five years per capita personal disposable income has gone up by around 8 which has increased
purchasing capacity of the people in the country Other factors have also contributed to this high growth in Indian
automobile sector These include lowering age of first car users shorter replacement cycles rising duel income
families nw technology which is lowering cost of ownership low car penetration in the country and most
importantly growing steel production in the country In addition wide variety and easily available financing
options are also some of the major reasons for surge in demand for automobiles in India
Global automobile manufacturers are consistently streamlining their business process by outsourcing their non-
core activities to low-cost countries like IndiaGlobal automobile manufacturers are under tremendous pressures
to innovate their manufacturing process and at the same time to reduce costs In view of the present global
competitiveness they must not only develop new features to strengthen their customer requirements but also
follow the environmental and safety standards In addition the base price of a car is expected to remain same over
the next decade As a result companies are forced to source more components from low-cost countries like India
According to Mckinsey global outsourcing of automobile and auto components would reach US$375 billion by
2015 from US$65 billion in 2002 India has plenty of scope to garner this potential According to the management
consulting firm India has the potential to notch this opportunity and reach up to US$25 billion to emerge as
major sourcing destinations along with China Mexico and Thailand Besides low cost Indias auto components
industry has the major advantage of enormous skills in process product and capital engineeringmdashits excellent
manufacturing history and good education system
19
Human beings think our way is the best but at Toyota we are told we have to always change We believe there is
no perfect way so we continue to search The goal is to break the current condition through Kaizen
- Shoichiro Toyoda Chairman Toyota Motor Corporation in December 2000
When Kaizen is applied to the workplace it means continuous improvement for - managers and workers Thus
Kaizen involves everyone in an organization to make improvements without large capital investments It can be
seen as a culture of continuous sustained improvement focusing on eliminating waste in all systems and
processes The Kaizen strategy begins and ends with people With Kaizen an involved leadership guides people
continuously to improve their abilities to meet high quality expectations low cost and on-time delivery which in
turn helps the organization gain a competitive edge
The production divisions council which checked the plants objectives occasionally modifying them taking into
account the companys profit targets replaced the production allowance councils After approval these objectives
became the Kaizen norm of each plant in terms of production efficiency The method of determining the
production efficiency was altered to make it less constrained as the standard time was fixed by measuring the time
really required for workers operations whereas earlier standard time was fixed on the basis of the best standard
time marked in the past
20
Chapter 4 Industry Profile
21
CHAPTER 4 Industry Profile
The Trans-nationals were also serious about developing vendors in India India is
bound to become an important destination for the global auto industry It took the financial turmoil in South East
Asia and the slowdown in the Chinese auto market to reinforce the targeting to Indian Market The new interest in
the small car segment also reflects certain amount of bullishness on the part of auto manufacturers about India
Despite projected over capacities--and current losses carmakers continued to queue
up their investments for small car segment To day there are 10 global auto majorsmdashincluding the $13-billion
Suzuki Motor (Japan) the $65-billion Daewoo (South Korea) the $147-billion Ford (US) the $47-billion Fiat
(Italy) and the $168-billion General Motors (US) operating in Indian Market
Chapter 41 The Pre 1997 Automobile Market
As late as 1997 the auto market in India was clearly segmented At the entry level
were MULs 800-cc car--priced between Rs 210-lakh and Rs 245 lakh--and the Omni at Rs 175 lakh At the
next level were the 993-cc Zen--priced at Rs 370 lakh--and the 999-cc Fiat Uno (Rs 362 lakh) Then came the
1300-cc Esteem models--priced between Rs 469 lakh and Rs 595 lakh--the 1498-cc Cielo (Rs 620 lakh) and
the 1598-cc Opel Astra (Rs 752 lakh) followed by premium cars like Mercedes-Benzs E-220 (Rs 22 lakh)
Changing Lanes
Two events have upset the equations in the price-segmented car market Daewoo has
Changed the lanes with the Cielo which is now priced at Rs 490 lakh and competes with the Zens top-end
model (Rs 440 lakh) and the Esteems lower-end version (Rs 469 lakh) Ceilo has created a new value segment
where the price is not proportionate to the size Daewoos strategic response has very clearly redefined
differentiation from price or size to value
22
Hyundai Motors India a subsidiary of the $27-billion Hyundai of South Korea launched
its 999-cc Santro at the Auto Expo 1998 in Delhi The model comes in five variants with the non-air-
conditioned manual transmission model priced at Rs 280 lakh and the semiautomatic air-conditioned GLS
model priced between Rs 315 lakh and Rs 4 lakh ClearlyHyundais strategy is aimed at taking on the market
leader Maruti Udyog Limited But by pricing the deluxe model at Rs 4 lakh it is also bridging the gap between
the small and the middle car segments At present Marutirsquos Esteem LX is priced Rs 70000 more than the
Santro GLS while the Cielo is priced Rs 90000 more
The further entry of new players will only blur the segments New entrants will be
involved in price war to find a foothold in the Indian market Few of the examples include
TELCOs positioning of its 1400-cc Indica car--launched in November 1998 and priced close to Marutirsquos 800-cc
model as a small carand Honda sneaking its 1300-cc City into the segment vacated by the Cielo although it is
an accepted fact that pricing or positioning cannot be done in isolation In a crowded market that must depend on
the available strategic opportunities
By creating new segments companies can broaden their market base increase
capacity utilization levels pre-empt competitors market entry moves and importantly lower costs While Maruti
did that by launching three versions of the Esteem TELCO accomplished it by using a common platform for the
Sumo the Estate and the Sierra models Hyundai is also planning to come to the market with five variants in near
future At high volumes costs can be lowered by more than 20 per cent across variants due to experience curve
effect
Configuring the sticker price for a car in the market today is no more a functional
decision It has become a strategic decision as it identifies the key segmentrsquos response
23
elasticity to the market offer The two key inhibiting factors for the poor response to the auto war fare in Indian
Car Market are basically the low per capita income at $350 (Rs 14000 at current prices) and the high
manufacturing costs A large part of the population expected to graduate from two wheelers to four wheelers has
not responded as they were supposed to during this period of time The domestic auto giant Maruti Udyog
limited still forces the new players to benchmark themselves against its products which roll out from a
depreciated yet high-volume plant It enjoys the fast mover as well as the cost advantage with the higher capacity
utilisation that helps him to cut costs across as more cars you make the cheaper they get
With the worldrsquos second largest and fastest-growing population there is no doubt that Indiarsquos potential in both
economic and population terms and the effect it will have on the auto industry in the next years During the last
two years export from this sector has grown significantly owing mainly to the export of cars and two-three-
wheelers
The industry is characterized by a very high percentage (75) of production in the 23 wheeler sector India ranks
as the largest manufacturer of motorcycles and second largest in manufacturing of scooters in the world India
today is also the second largest manufacturer of tractors as well The industry has intense forward and backward
integration
The Indian automotive industry had experienced an extraordinary growth due to the improvement in the living
standards of the middle class and an increase in their disposable incomes Moreover the liberalization steps such
as relaxation of the foreign exchange and equity regulations reduction of tariffs on imports and refining the
banking policies initiated by the Government of India have played an equally important role in bringing the
Indian Automotive industry to great heights
It is estimated that the sale of passenger cars have tripled compared to their sale in the last five years Thus the
sale of cars has reached a figure of 1 million users and is expected to increase further Its also to be noted that the
24
demand for luxurious models SUVs and mini-cars for family owners have shot up largely due to increase in the
consumers buying capacity
The Indian automotive market
India country fact file 2005
Population 1 080 264388
Per Capita GDP (PPP) $3400
GDP Growth Rate 71
Total automotive sales 2005 1 439604 (889333)
Total automotive production 2005 1 643460 (1 000567)
Market growth 2005 vs 2004 70 (64)
Best sold model PC segment 2004 Maruti Alto (168)
Best sold model LCV segment 2004 Maruti Omni (213)
(passenger cars) (market share in segment)
Source httpwwwsegmentycomIndiahtm
Chapter 42 The Protected Indian Domestic Automobile Sector
MUL which set up shop in 1984 had 10 long years of relative protection to emerge as a formidable competitor
with high volume and a strong brand image in the mind of Indian customers When the industry was deregulated
in 1993 the cost barrier had become so high that new companies could not dare to look at the small car segment
25
Instead they settled for the mid-size segment where both volumes and margins were expected to be high
However a shakeout in the Indian mid-size car segment the slowdown in international auto sales pushed
transnational auto majors into India which have now turned the tide against MULThe present generation small
cars launched recently are more contemporary in terms of both design and technology while Marutis small-car
technology is at least a decade old
Keeping the future growth potential of Indian market in mind the auto majors are prepared to bear losses for the
next 10 years This will help them to gain a good market share the long run and provide breathing space to
counter the strategic moves of the leader Hence the narrowing price differential between the old and the new
small cars is the first call of the auto majors against Maruti in Indian Market If Maruti has to try and match the
features of new generation small cars it would mean additional costs On the contrary if Maruti decides to
hold its price line and add new features it could translate into losses or at least low profits But MUL can still
bank on at least two Suzuki models the proposed 657-cc Cervo C and the current 996-cc Wagon R to battle its
rivals in the future
Chapter 43 The Advent of the Auto Majors
Besides bracing up for losses in the initial years auto majors like Hyundai and Daewoo are banking on exports
too At the moment export may look unattractive because of the South Asian meltdown but in the long run low
production costs and component-manufacturing skills will make India- made cars competitive at global market
place Hence they are looking India as a production base to cater to the growing Asian market by way of
outsourcing from Indian manufacturing base However many a hurdles they have to cross on the journey to
profitability
26
The investments necessary for a large plant are simply huge Daewoo has so far sunk Rs 2700 crore in a
120-lakh-unit-a-year plant Unlike China which has restricted the number of companies India has followed an
open door policy for car manufacturers which has resulted in emergence of fragmented markets with distributed
capacity
An Original Equipment Manufacturer (OEM) needs a minimum economic size of 150 lakh cars a year to attract
vendor interest Daewoo was able to slash the Cielos price as it is cheaper to import components because of the
devaluation of the South Asian currencies The auto majors are lobbying with the government to ease the strict
indigenisation norms in the new automobile policy so that they can import the components from other countries
This will help them to cut the prices and to go head on the market leader particularly in a price responsive market
like that of small car segment
The other argument is that with the given import duty of 103 per cent on Completely Knocked-Down Kits
(CKDs) which is the same as that on Completely Built-up Units (CBUs) and 68 per cent on components the
imports will become costlier and compel companies to localize their manufacture The exposure to currency
fluctuations which crippled the four Japanese light commercial vehicle projects in the late 1980s is also minimal
when a company localizes component manufacture
Besides lean manufacturing techniques like Just-In-Time (JIT) are possible only when the supplier is located
close to the manufacturing unit If Maruti is a success story it is only because it indigenised 85 per cent of its
components within five years of going on-stream
Then theres the question of servicing the replacement market for spares Customers typically expect
components to be available locally and at competitive prices Imports cannot guarantee that but it is a
27
tremendous job to localize components at the right quality and price given the supplier problems in prevalent in
India
An Original Equipment Manufacturerrsquos competitive advantage lies in its marketing skills Having achieved price
and technology parity it can easily woo the consumer with attractive financing schemes and superior after-sales
service Nudged by the competition most auto players have a clutch of schemes to offer Daewoo Motors India
provides interestfree car finance Ford Motor and General Motors have slashed interest rates MULs joint
venture finance company Maruti Countrywide is offering loans at 1350 per cent when the prevailing lending
rate is 17 per cent and above
Chapter 44 The After Sales Service Scenario
After sales service for cars is as critical as showroom deals Maruti services its 2 million customers through an
army of 174 dealers spread across the country It will be impossible for a company to duplicate such
infrastructure particularly with investments in a metro-based showroom going up to Rs 4 crore Margins in
retailing are moving from actual sales to after sales service
The problem of price war is evident with Auto majors as much as with dealers In a bid to woo the customers
dealers particularly in non-prime locations are cutting their margins It will not be surprising if single-brand
dealers eventually turn into multi-brand sellers in future
Doing so will benefit all the three constituents in the marketing chain the OEM the dealer and the buyer The
carmaker can expand his reach without expensive investment the dealer can increase his revenue and the
customer gets a variety of models and brands under one roof in future
The local partner will be the loser in this fierce battle Without the means to make either matching equity or
technological investment the Indian collaborator will be driven off the road
28
It has already happened to the Rs 166-crore DCM which tied up with Daewoo Motors and can happen to both
the Rs 1258-crore Hindustan Motors (Partner General Motors) and the Rs 360657 crore Mahindra amp Mahindra
(Partner Ford Motor)
So they are reconciled to adopting a minority role or becoming auto component vendors This list includes
Siddharth Shrirams Rs 430-crore Siel (Partner Honda) the Kirloskars (Partner Toyota) and the Munjals of the
Rs 2000-crore Hero Group (Partner BMW) And the evidence is compelling eg Hindusthan Motors has a
passive role in its joint venture with General Motors although the Opel Astra is manufactured at HMs Halol plant
in Gujarat The same can be forecasted about Mahindra and Mahindrarsquos joint venture with Ford Motor What can
prolong the life of the joint venture is distribution muscle as it will take at least five years for a transnational auto
major to build a strong distribution channel in this country
By all accounts the auto industry is headed for a glut With an estimated demand for cars to touch 9 lakhs in
2001-2002 the installed capacity will rise to 16 lakhs So the current growth rate in Indian market is not
sustainable There will be at least two years of stagnant or declining demand before the resumption of the growth
trendThere is a projected demand of 1-lakh cars in the mid-segment alone by 2001-2002 And the car numbers
will add up to around 6 lakh a year That will engender a shakeout which is already afoot in the other Asian
markets For instance poor off -take and a consequent build-up of car inventories has led to a fierce price-war in
China
Chapter 45 Market Potential of Indian Automobile Segment
The demand for the small car will continue to drive growth for the next five years Of the total sales of Maruti in
2000-2001around 85 per cent were small cars The Esteems sales dropped in the same period where as the small
cars drove MULs sales So demand for small cars will leap only if certain conditions are fulfilled
29
Rise in the Income Levels In the US auto demand rises by 4 per cent for every 1 per cent increase in the real
Gross Domestic Product but this is irrelevant for India as only the top 150 per cent of the population
can afford a car The demand can shoot up if the income levels of the top 5 per cent continue to rise in future
Level Of Motorization It is stagnant at 170 cars per 1000 people for decades However in the post-liberalization
period the motorization level has leaped to 370 cars per 1000 Although it is still lower than the levels in the
developed markets motorization is bound to rise further in the coming years
Chapter 451 Vehicle Prices
Falling imports and excise duties coupled with competition will continue to boost demand and
the prices are likely to fall further at least in the short run
Chapter 452 Consumer Finance
Over 60 per cent of customers opt for consumer finance That figure could go up if interest
rates continue to fall
Chapter 453 Infrastructure
Traffic congestion and bad roads could deter potential buyers from going for small cars
particularly in small cities of India The future is not very heartening in this aspect
Chapter 454 Product Availability
As manufacturers shift their attention to the small car more and more people will be able to
afford it and demand will only rise in the future period of time
30
Chapter 46 The Future-Indian Automobile
There is a sharp contrast in the buying behavior of Indian Consumer compared to their western counter parts yet
there is no doubt that Indian car market is going to increasingly resemble the latter In the West the industry is
likely to be dominated by three or four major players With a likely demand of 11 lakh cars by 2006 there will be
a few niche players like BMW Mercedes-Benz and Audi with luxury cars to offer Unless car manufacturers
have a large range of vehicle to offer they will be unable to subsidize their costlier models
The market will consolidate to few segments The carmaker has to make diverse models based on diverse and
flexible platforms Products like the stripped-down economy car the sports utility vehicle or the van should be
built on the same platform For the price-sensitive customers there can be a no-frills version a loaded version for
the middle customer and luxury car manufacturers can target the high-end customers
The fortunes of the autoobile industry will continue to hinge on the large price sensitive customers who will
graduate to the higher end of the market over a period of time
Until then the small car will continue to drive demand and most of the car-manufacturers are
gearing up for this eventuality
31
Chapter 5 Company Profile
ldquoTata Motorsrdquo
32
CHAPTER 5 Company ProfileTata Motors
Tata Motors previously known as Tata Engineering and Locomotive Co Ltd (TELCO) is one of the largest
companies in the Tata Group and one of Indias largest business houses Tata Motors is Indias leading
commercial vehicle manufacturer and the third largest passenger car manufacturer The company is the sixth
largest truck manufacturer in the world Tata Motors recently received the Balanced Scorecard Collaborative Hall
of Fame Award for having achieved a significant turnaround of its overall performance A comprehensive quality
improvement and cost cutting initiative in September 2000 has played an important role in the companys
turnaround from a loss of Rs 500 crores in the year ended March 2001 to a profit of Rs 28 crores in the first
quarter of 2002-2003
Tata Engineering and Locomotive Company (TELCO)
Chapter 51 History amp Evolution
Tata Engineering and Locomotive Company Ltd popularly known as Telco was incorporated in 1945 to
manufacture steam locomotives In 1954 the company diversified into automobile manufacturing through a
collaboration with Daimler-Benz for the manufacture of commercial vehicles By the time the collaboration ended
in 1969 Telco had not only become an independent producer of medium commercial vehicles (MCVs) with
negligible import contentbut had developed the capability of designing and developing such vehicles The
Company progressively widened its product range to cover heavy commercial vehicles (HCVs) and light
commercial vehicles (LCVs) implementing one expansion program after another
To sustain the unrelenting pace of its growth Telco added machining press and assembly
33
capacities set up its own forge and foundries and virtually created the countryrsquos automobile ancillary industry
The Company even developed facilities for designing and manufacturing state-of-the-art machine tools material
handling equipment dies and fixtures To accommodate the Companyrsquos growing activity base a large modern
complex was set up at Pune in western India and a new plant became operational at Lucknow in the north of the
country
To provide a business focus for the Companyrsquos main activity areas Telco has created twobusiness unitsrsquo -
Automobiles and Construction Equipment ndash both of which have notched up record-breaking results
Telco today has a domestic market share of 68 in the MCVHCV segment 64 in the LCV segment and 32
in the multi-utility segment Apart from commercial vehicles which range from 1 ton to 35 tons GVW Telcorsquos
automobile products also include passenger vehicles and an extraordinarily popular multi-utility vehicle All these
products have been developed inhouse by the Companyrsquos own RampD Center This Center is equipped with the
latest computeraided design hardware and software enabling the company to respond quickly to changing
customer needs both in India and abroad
Telco has been exporting its products since 1969 and currently exports about a tenth of its
output Export markets include the Middle East Africa and Southeast Asia as well as
developed countries in Europe like France UK and Spain It is intended that exports should account for 20 of
the automobiles sold by the Company
Telcorsquos second line of business Construction Equipment has also grown rapidly and the
Company currently commands a 61 share in the excavator market and 90 in the crawler cranes market in
India The hydraulically operated construction equipment made by the company is in collaboration with Hitachi
34
Construction Machinery Limited of Japan There are ambitious plans for widening the range of excavators made
by the company and for adding new lines of construction equipment A recent addition to the excavator range is
Backhoe Loader
Telco is one of Indias largest private sector companies With a turnover of Rs 6637 billion it is the countrys
leading commercial vehicle manufacturer and the worldrsquos sixth largest automobile company
The widely successful Tata Indica which is Euro 1 and 2 compliant is the countryrsquos first
indigenously designed developed and manufactured passenger car The company also
makes several other passengers vehicles including the Safari the Sumo the Sierra the Tata Estate and the
Tatamobile pick-up
The companyrsquos products have received wide acceptance not only in India but also in markets in the Middle East
Asia Africa and Europe
Chapter 52 Areas of business
The company manufactures medium heavy and light commercial vehicles multi-utility
vehicles and passenger cars It also makes general and special purpose machines for
automotive applications at its machine tool division These include NCCNC horizontal and inline machining
centers flexible manufacturing systems CNC cylindrical grinding machines and robots for welding cutting
painting and other applications
In 1999 the companyrsquos revenues from its four manufacturing plants at three locations in India were Rs 6637
billion ($15735 million) In 1998 they were Rs 7026 billion ($1893 million) (The average exchange rate in
1999 was Rs 4218 to one US dollar)
35
In the year ended 31 March 2000 the companyrsquos total exports were worth about Rs 50553 crore against about
Rs 60078 crore in the previous year
Locations
The companyrsquos manufacturing plants in India are at Jamshedpur in Bihar Pimpri and
Chinchwad near Pune in Maharashtra and Lucknow in Uttar Pradesh A fifth manufacturing facility is being set
up at Dharwad in Karnataka
Collaborations
The Company has technical tie-ups with
bull The Institute of Development in Automotive Engineering SPA Italy for assistance in
small car body design and styling
bull Nachi Fujikoshi Corporation Japan for robots for welding painting and other
automotive applications
bull Le Moteur Moderne France for the development of diesel and petrol engines for
passenger cars and
bull Robert Bausch GmbH Germany for application work on the engine management
system for 4 PL petrol engines
36
Chapter 53 Tata Motors ndashSuccessful Car Indica
TELCO launched Indica when the TATA group was in red Telco chairman Ratan Tata said that the 1400 cc car
Indica would drive the company out of the red
Tata while talking to reporters at the IETF 99 in a videoconference from Mumbai said that the overwhelming
response of over 125 lakh initial bookings for the Indica had come as a surprise It seems we touched the
national chord somewhere as people responded to the fact that this is the first Indian car said Tata Indica is not
the end of the road for Telco when it comes to passenger cars It is just the beginning as there are more to come
said Tata adding that the company was working on another mid-size car after Indica
Telco had to produce 60000 cars a year to break-even The group created two
organizations within Telco one dealing with commercial vehicles and the other with passenger cars The
company under took a major restructuring exercise whereby the passenger car and commercial vehicles divisions
would function as two separate business units Telco had a strategy to go for exports after addressing the initial
requirements of the domestic market
Awards and Recognition
In May 2000 Tata Engineering and Locomotive Company Ltd (Telco) won a national award for successful
indigenous technology used in the Indica car project The award titled National award for successful
commercialization of indigenous technology by an industrial concern for indigenous development and
commercialization of Tata Indica car was presented by the minister for human resource development science and
technology and ocean development
Dr Murli Manohar Joshi
37
In November 1999 Telco was awarded the Department of scientific and industrial research
national award for indigenous design of the Tata Indica It was the first company in India to implement stringent
emission norms well ahead of the mandate dates
Promotions
The Indica advertising made interest for the car go into overdrive The campaign revolved around the premise that
the Indica would not just meet peoples expectations it would exceed them Every advertisement has a story to
tell
Pre launch Campaign
The Indica campaign began in the right earnest in December 1998 It was advertised as the launch of a car that
will spell doom for the small cars It was directly aimed at Maruti 800 The ad line used in the first campaign was
ldquoCar makers will suddenly remember all the thing they forgot to give yourdquo This hinted that Indica would have
more features than any of the existing small cars Indica used the catch lines like ldquo More car per Carrdquo ldquoMore
dreams per carrdquo to suggest that Indica will be bigger in size to the existing small cars yet be in the small car
category It competes with the mid size cars on size and give them a run for their money with its cheaper price
tag
At the launch of the car TELCO claimed that the people would never have to suffer from a small car again and
that the n end of the year (1998) would be the end of the small cars
Launch Campaign
The launch campaign of Indica focussed on the many advantages that it offered over other cars in the same
segment It promised the customers more than the current offerings Its first advertisement carried the following
catch line ldquo50cc moped 100cc bike 800cc car Time you asked for morerdquo
38
It then concentrated its efforts on criticizing the negative aspects of Maruti 800 and highlighted how Indica has
removed those very defects and presented a very sophisticated and modern car to the Indian customer It even
pointed out that the shape of Maruti was very unconventional and that people would prefer the shape of Indica to
Maruti 800 The advertisement read ldquo Box shaped bubble shaped wedge shaped But then Gentlemen prefer
curvesrdquo
The launch campaign also focussed on the roomy interiors of Indica a feature not offered by Maruti at that point
of time Also the expertise of TATA in diesel engines and fuel efficiency of these were the highlight of the launch
campaign of Tata Indica
Post Launch Campaigns
While the Launch campaign focussed on the features of Indica the post launch advertisements focussed on the
superior after sales service and longer warranty periods offered by Indica
Telco was the first company to offer an 18-month warranty period on engine parts The most famous line used
during this campaign was ldquoWe could go on and on about service or give you the one word summary TATArdquo
While their main adversary was the Maruti 800 Telco felt that it could also tap the mid size segment using the
selling point of space given by Indica They carried a campaign which said ldquoForget small cars we even make big
cars feel smallrdquo
It then went on to highlight the fact that Indica was Euro II compliant even before it was legally binding upon car
manufacturers to do so It also highlighted the concrete wall safety test that Indica withstands and tried to
showcase the car as a safe and strong car
39
Chapter 6 COST REDUCTION TECHNIQUES
IN TATA MOTORSrsquoS INDICA
40
Chapter 6 Tata Indica - The Making Of The Small Car
with objective of minimizing costs
The research provides an understanding of the issues concerning the supply chain management system at
Telco in regard to its small car Indica It outlines how Telco built the supply chain for the car by leveraging its
existing competencies and how it transformed itself from an integrated truck manufacturer to an automobile
integrator and from a product-centric company to competence- centric company The case discusses various
components of the supply chain and emphasises how Telco orchestrated them with the objective of minimizing
costs
ldquoTelcorsquos 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 comerdquo
- Business India March 22 1999
In the early 1990s Telcorsquos Chairman Ratan Tata (Tata) was flirting with the idea of developing a small
car By mid-1994 a rudimentary design was in place In 1995 Telco announced that it planned to build a car
which would be priced close to the Maruti 800 shaped like the Zen and spacious as an Ambassador
Producing the new small car ndash Indica ndash represented a different kind of challenge for Telco Should Tata succeed he
would change the face of Telco As a truck-maker Telco was so integrated that it even made it own castings and
forgings As an automaker it would have to focus on the value chain that stretched between raw materials and after-sales
41
service as well as assembling the parts into the complete automobile
For its new venture Telco outsourced 80 of the components (1200 of its 1500-plus parts) from 200-odd vendors To
develop the Indica Telco had to combine the learnings from its predecessors with its own unique supply chain
management strategies to ensure a sustainable low-cost platform
By learning to build and manage a supply chain it would set the ground for leveraging the capabilities of the
automotive component-manufacturers who already operated in its target markets In other words Telco planned
to use its skills as an integrator--bringing together products and services from both upstream and downstream
operations and packaging them for the customer under a brand name in its new venture
Globally a car could be built in 48 months with an investment of US $ 3 billion (Rs 1275 billion) Indica was
built in 31 months on a budget of Rs 17 billion This seemed to have been possible by focussing on the supply
chain
Chapter 61 THE OUTSOURCING STRATEGY
For Telco outsourcing seemed to be one of the most difficult aspects of producing the Indica Unlike global
automobile majors Ford Motors or General Motors which had a global vendor-base that could be replicated on
a smaller scale in India Telco had to create a vendor-base from scratch Moreover it did not have the expertise
either to design a car or to build an engine for it
Against this background Telco had to take its primary lsquomake-or-buyrsquo decisions for the key inputs-design
engine and transmission Telco decided to shop globally for the best deals and use its own expertise to make
42
whatever modifications were needed
(Refer Table I for the components outsourced by Telco)
TABLE I
OUTSOURCING THE COMPONENTS
Components Supplier
5 door hatchback IDEA Italy
Engine Institut Francais du Petrol
France
Assembly Line Nissanrsquos Plant Australia
Presses Mercedes Benz
Pistons and Piston rings India Pistons
Electrical components and fuel injection
systems Lucas-TVS
Steering systems Rane TRW Steering Systems
Clutch facings and rear (drum) brake linings Sundaram Brake Linings (SBL)
Seating Systems Tata-Johnson Controls
Radiators Tata-Toyo
Rear view mirrors Tata-Ficosa
Front and rear bumper dash-board inside
trims Tata-Auto Plastics
Air conditioning kits Subros Ltd
Wind screens and windows Asahi Glass
Fuel lines Imperial Auto
Differential assemblies Sona Steering
43
Sheet metal items JBM Tools
Source Business Today March 22 1999 and December 7 1999
Telco turned to the Italian company IDEA for the product-design It bought the engine from the Institut
Francais du Petrol of France and applied its engineering skills to adapt the engine requirements The transmission
was developed in-house at its Engineering Research Centre (ERC) at Pune Of the Rs 25 billion it spent on
designing the Indica the major share went in buying design tools and training its engineers in new skills Telcorsquos
engineers traveled regularly to the sites of its technology suppliers to receive training before the actual delivery
of the machines
Telco also outsourced its assembly line from Nissanrsquos plant in Australia for just Rs 900 million Telco
transplanted it at its factory at Chikli near Pune which was newly set up for Indica A new assembly line of the
same proportions would have cost at least Rs 4 billion Again of the 3 presses for the Indica only 1 was new
acquired for Rs 900 million while the other 2 were bought second-hand from Mercedes-Benz and modified to
suit the Indica
Telcorsquos engineers and the ERC did the application engineering programming installation and commissioning to
save around 45 of the technology costs The tooling for the car too was supplied internally by Telcorsquos machine
tool division To manage the supply chain better Telco kept the number of suppliers for Indica to just 200 as
compared to about 1000 for trucks Most of the parts were supplied by Telcorsquos traditional suppliersmdash TVS Rane
Group and Tata Auto Component Systems (Taco) who were single source suppliers Pressed parts assemblies
and drive shafts were sourced from single vendors
44
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
Chapter 2 Research Methodology
CHAPTER 21 Primary Objective
The founder of the Japan-based Kaizen Institute Masaaki Imai defined Kaizen in his book Kaizen - The Key to
Japans Competitive Success as Kaizen means continuous improvement in the personal life home life social
life and working life Automobile companies applied Kaizen for continuous improvement in their operations
When Kaizen is applied to the workplace it means continuous improvement for - managers and workers Thus
Kaizen involves everyone in an organization to make improvements without large capital investments It can be
seen as a culture of continuous sustained improvement focusing on eliminating waste in all systems and
processes The Kaizen strategy begins and ends with people With Kaizen an involved leadership guides people
continuously to improve their abilities to meet high quality expectations low cost and on-time delivery which in
turn helps the organization gain a competitive edge
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
- Jay Wetzel Vice President and General Manager GM Technical Center commenting on the benefits
derived from CADCAMCAE tools in 200
To Study Operations of Automobile Company(Tata Motors)
(a) Study of Effective Cost Reduction techniques in Supply Channel of distribution Network
9
(b) Study of Effective Cost Reduction techniques in Procurement of Raw Materials
(c) Study of Effective Cost Reduction techniques in Operational Management
According to the Council of Logistics Management Supply Chain Management ldquothe process of planning
implementing and controlling efficient and cost effective flow of materials in-process inventory finished goods
and related information from point-of-order to point-of-consumption for the purpose of conforming to customer
requirements as efficiently as possiblerdquo The automobile industry has undergone significant structural and other
changes in the last decade or so In view of the present globalisation implementation of lean production and the
development of modularisation have changed the relationships between automobile assemblers (OEMs) and their
suppliers especially those in the first tierStiff competition among manufacturers will result in more mergers or
acquisitions The challenges automobile manufacturers and suppliers face include improving quality meeting cost
reduction targets and developing time to market
CHAPTER 22 Hypothesis
Is Automobile companies are following certain guidelines for Operations or not
Hypo 1- Network Planning ndash This is one of the most important issues for SCM
Determination of production requirements and inventory levels at the vendorrsquos facility for each product and
development of transportation flows between these facilities to the warehouses in a best possible way to reduce
total production inventory and ransportation costs with fulfilment of service level requirements
10
Hypo 2- IT and Decision Support Systemndash
This is another important challenge for SCM Today SCM is driven by the scope and opportunities appearing due
to abundance of data and the savings which can be achieved through efficient analysis of these data What data
should be transferred with its significance and most importantly what infrastructure is required internally and
between its partners is very important
Hypo 3- Supply chain integration and strategic partnering ndash
In SCM information sharing and operational planning are crucial for successfully integrated supply chain
CHAPTER 23 RESEARCH DESIGN
The study was conducted on part of Business Expansion plan of Automobile industry to expand their
existing Business On this part Exploratory Survey was conducted to know about Operatational Strategies of
automobile companies
This Market research is EXPLORATORY RESEARCH DESIGN Arguments in favors of EXPLORATORY
RESEARCH DESIGN is-
-It tests the Hypothesis examines the relationship and comes to a conclusion It test Hypothesis whether -
Is Automobile Companies using Network Planning
Is Automobile Companies using IT and Decision Support system
Is Automobile Companies Using Supply Chain Integration And Strategic Partnering
Findings and analysis are used for Decision making on account of Surveyed Data
11
In This type of Exploratory Research design involves Collection of Information from Secondary Data
In this Automobile Survey The whole study is Secondary data based oriented
a Secondary Data from Internet on Manufacturing Industries
b Journals on Cost reduction Techniques on manufacturing Industries
c Scholarly articles for brief about indian manufacturing industries
d Books on Operational management
e Review Articles on Supply Chain-Upstream and Down stream
f Study for Opeartion Research Techniques- Transportation Techniques
CHAPTER 24 Scope of the Study
Among the studys key findings are
Indian automobile and auto components industry is on a roll and there is an immense scope for management
for enhancing the supply chain of the sector India has become a favourable destination for foreign companies
to establish their facilities and form alliances with domestic companies Low cost of manufacturing
and conducive government support have been the major drivers for foreign companies investing in India
Indiarsquos large young population higher GDP growth and most importantly per capita passenger car penetration
is low at 85 car per thousand population which creates great opportunity for industry players to offer
an affordable four-wheeler alternative to the two-wheeler customers According to Planning Commission of India
Indian automobile industry is expected to grow at CAGR of 15 over the next five years The Indian economy is
12
now gaining momentum in the world of free trade and liberal movements of goods and services between
countries Therefore efficiency in supply will be critical for Indiarsquos automobile success
NEED FOR MATERIALS-SYSTEMS APPROACH
Improved materials and materials processing can and must play a large role in generating productive and effective
responses to the forces that will drive the automotive industry in the future However these forces often pull in
diverse directions when specific technological actions are considered For example aluminum alloys can be used
to reduce vehicle weight thereby reducing emissions and improving fuel economy but the added materials costs
currently offset these advantages for many applications As a result steel is still the major material of choice for
automobile construction today and will be difficult to supplant for the foreseeable future
Indiarsquos process-engineering potential can be utilised for redesigning of manufacturing
processes to make them more labour intensive and less capital intensive which will enable the MNCrsquos to reduce
their overall costs substantially For instance de-automating of the production processes which are applied in
Western countriesrsquo factories can reduce the overall manufacturing cost of some components by up to 20
In case of product engineering India has emerged as a leading destination in the world
Indiarsquos strength is in its design which helps in reducing costs For instance redesign of the Maruti Altorsquos steering
system has cut down its weight by 15 India with its skilled engineers can design a product very fast which in
turn reduces its development cost and lead times For example an Indian supplier took six months to design a
steering system for an automaker It took more than four years to develop similar system with suppliers in the
other low-cost countries Several automobile manufacturers have already set up their auto component facilities in
India
13
CHAPTER 25 Limitations
For Automobile Study Primary Data varies wrt Secondary Data on account of theoretical practices in field then
practical theories
With increasing disposable incomes and ever-growing burden on the public modes of transport the Indian
passenger car industry is heading for a bright future provided car manufacturers offer a world class cars that give
value for money use novel marketing concepts to entice potential buyers and offer good after-sales service
Demand for passenger cars in FY2002 is projected at approximately 970755 units while production is expected
to reach 1210000 units The year is likely to witness a spurt in exports due to excess supply and liberalization of
export policy by the government
Some of the future strategies that need to be addressed while entering in to Indian small car market include the
redesign of the vehicle to suit the Indian road conditions and to develop aggressive marketing strategy to counter
the cost advantage enjoyed by dominant players like Maruti due to high capacity utilization With growing
number of two wheeler owners opting for used cars vehicles with higher resale value and excellent service
network are likely to account for a major market share in the near future Moreover the introduction of Euro III
and Euro IV norms in the near future is likely to increase the scrapping rates of cars
Exports are likely to increase in the near future with the entry of international car giants like Daewoo Hyundai
Honda Siel GM and Ford that intend to use India as a manufacturing production base
14
Chapter 3 CRITICAL REVIEW OF
LITERATURE
15
CHAPTER 3 CRITICAL REVIEW OF LITERATURE
A just released customer research study titled Customers Say What Companies Dont Want to Hear throws a
bucket of ice water in the face of some core business management tenets mdash plus a number of keystone principles
of the marketing advertising and customer relationship management (CRM) industries
Greenberg adds Customers Say What Companies Dont Want To Hear proves a mission-critical strategic point
Businesses need to rethink their logic and develop new operating models based on customer centric behaviors and
valuations
Commenting on the findings Paul Greenberg author of the industry best-seller CRM at the Speed of Light
Customer Strategies for the 21st Century says Lee and Mangen have verified and amplified with hard data
the growing perception that the new breed of customer is here to stay and businesses need to react mdash or risk their
very existence
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 While a top manager should be the ideal customer he
should also be the greatest critic of his companys products If the CEO compromises or is only looking at the
margins then even if he is successful the companys success will be short lived
- Ratan Tata the Chairman Tata Group
16
Chapter 31 Automobile Market Overview
The domestic automobile market has been growing at 142 per cent CAGR over the past 4 years (2000-01 to
2004-05) while the auto components market has been growing at 192 per cent CAGR (2000-01 to 2003-04) The
industry (OEMs and suppliers together) contributed nearly 4 per cent to the countryrsquos GDP in 2003-04 The
automotive sector also offers significant employment opportunities It employs 045 million people directly and
around 10 million people indirectly
The industryrsquos capabilities in design engineering and manufacturing have been recognised the world over and
most automotive majors are looking to increasingly source auto components from India
India is emerging as one of the most attractive automotive markets in the world and is poised to become a key
sourcing base for auto components The table below captures the highlights of the sector in India that illustrates
its growing significanceSee Annexure A amp B
Indian Automobile Industry
Largest three wheeler market in the world
2nd largest two wheeler market in the world
4th largest passenger vehicle market in Asia
4th largest tractor market in the world
5th largest commercial vehicle market in the world
17
Chapter 32 Automobiles - Domestic Performance
The production and domestic sales of the automobiles in India have been growing strongly While production
increased from 48 million units in 2000-1 to 85 million units in 2004-05 (a CAGR of over 15 per cent) domestic
sales during the same period have gone up from 46 million to 79 million units (CAGR 142 per cent) A positive
trend in the domestic market is that the growth has not been driven by one or two segments but is consistent
across all key segments Two wheelers which constitute the majority of the industry volume have been growing
at a rate of 143 per cent three wheelers at a rate of 14 per cent and passenger vehicles at a rate of 113 per cent
Commercial vehicles have been growing at a higher rate of nearly 235 per cent although from a lower base
Since nearly all macro-economic indicators ndash GDP infrastructure population demographics interest rates etc ndash
are showing a favourable trend the domestic market for automobiles in India is expected to continue on its
growth trajectory
Chapter 33 Exports of automobiles from India
While the domestic sales of automobiles have been increasing at a significant rate exports have taken a quantum
leap in recent years The exports of automobiles from India have been growing at a CAGR of 39 per cent for the
past four years Exports growth has been spearheaded by the passenger vehicle segment which has grown at a
rate of 574 per cent
As a result the share of passenger vehicles in overall vehicle exports has increased from 18 per cent in 1998-99 to
26 per cent in 2004-05 Europe is the biggest importer of cars from the country while predominantly African
nations import buses and trucks The Association of South East Asian Nations (ASEAN) region is
the prime destination for Indian two wheelers
18
Chapter 34 REVIEW OF THESIS DONE
This is easy to understand because the per capita disposable income of the people has gone up remarkably Over
the last five years per capita personal disposable income has gone up by around 8 which has increased
purchasing capacity of the people in the country Other factors have also contributed to this high growth in Indian
automobile sector These include lowering age of first car users shorter replacement cycles rising duel income
families nw technology which is lowering cost of ownership low car penetration in the country and most
importantly growing steel production in the country In addition wide variety and easily available financing
options are also some of the major reasons for surge in demand for automobiles in India
Global automobile manufacturers are consistently streamlining their business process by outsourcing their non-
core activities to low-cost countries like IndiaGlobal automobile manufacturers are under tremendous pressures
to innovate their manufacturing process and at the same time to reduce costs In view of the present global
competitiveness they must not only develop new features to strengthen their customer requirements but also
follow the environmental and safety standards In addition the base price of a car is expected to remain same over
the next decade As a result companies are forced to source more components from low-cost countries like India
According to Mckinsey global outsourcing of automobile and auto components would reach US$375 billion by
2015 from US$65 billion in 2002 India has plenty of scope to garner this potential According to the management
consulting firm India has the potential to notch this opportunity and reach up to US$25 billion to emerge as
major sourcing destinations along with China Mexico and Thailand Besides low cost Indias auto components
industry has the major advantage of enormous skills in process product and capital engineeringmdashits excellent
manufacturing history and good education system
19
Human beings think our way is the best but at Toyota we are told we have to always change We believe there is
no perfect way so we continue to search The goal is to break the current condition through Kaizen
- Shoichiro Toyoda Chairman Toyota Motor Corporation in December 2000
When Kaizen is applied to the workplace it means continuous improvement for - managers and workers Thus
Kaizen involves everyone in an organization to make improvements without large capital investments It can be
seen as a culture of continuous sustained improvement focusing on eliminating waste in all systems and
processes The Kaizen strategy begins and ends with people With Kaizen an involved leadership guides people
continuously to improve their abilities to meet high quality expectations low cost and on-time delivery which in
turn helps the organization gain a competitive edge
The production divisions council which checked the plants objectives occasionally modifying them taking into
account the companys profit targets replaced the production allowance councils After approval these objectives
became the Kaizen norm of each plant in terms of production efficiency The method of determining the
production efficiency was altered to make it less constrained as the standard time was fixed by measuring the time
really required for workers operations whereas earlier standard time was fixed on the basis of the best standard
time marked in the past
20
Chapter 4 Industry Profile
21
CHAPTER 4 Industry Profile
The Trans-nationals were also serious about developing vendors in India India is
bound to become an important destination for the global auto industry It took the financial turmoil in South East
Asia and the slowdown in the Chinese auto market to reinforce the targeting to Indian Market The new interest in
the small car segment also reflects certain amount of bullishness on the part of auto manufacturers about India
Despite projected over capacities--and current losses carmakers continued to queue
up their investments for small car segment To day there are 10 global auto majorsmdashincluding the $13-billion
Suzuki Motor (Japan) the $65-billion Daewoo (South Korea) the $147-billion Ford (US) the $47-billion Fiat
(Italy) and the $168-billion General Motors (US) operating in Indian Market
Chapter 41 The Pre 1997 Automobile Market
As late as 1997 the auto market in India was clearly segmented At the entry level
were MULs 800-cc car--priced between Rs 210-lakh and Rs 245 lakh--and the Omni at Rs 175 lakh At the
next level were the 993-cc Zen--priced at Rs 370 lakh--and the 999-cc Fiat Uno (Rs 362 lakh) Then came the
1300-cc Esteem models--priced between Rs 469 lakh and Rs 595 lakh--the 1498-cc Cielo (Rs 620 lakh) and
the 1598-cc Opel Astra (Rs 752 lakh) followed by premium cars like Mercedes-Benzs E-220 (Rs 22 lakh)
Changing Lanes
Two events have upset the equations in the price-segmented car market Daewoo has
Changed the lanes with the Cielo which is now priced at Rs 490 lakh and competes with the Zens top-end
model (Rs 440 lakh) and the Esteems lower-end version (Rs 469 lakh) Ceilo has created a new value segment
where the price is not proportionate to the size Daewoos strategic response has very clearly redefined
differentiation from price or size to value
22
Hyundai Motors India a subsidiary of the $27-billion Hyundai of South Korea launched
its 999-cc Santro at the Auto Expo 1998 in Delhi The model comes in five variants with the non-air-
conditioned manual transmission model priced at Rs 280 lakh and the semiautomatic air-conditioned GLS
model priced between Rs 315 lakh and Rs 4 lakh ClearlyHyundais strategy is aimed at taking on the market
leader Maruti Udyog Limited But by pricing the deluxe model at Rs 4 lakh it is also bridging the gap between
the small and the middle car segments At present Marutirsquos Esteem LX is priced Rs 70000 more than the
Santro GLS while the Cielo is priced Rs 90000 more
The further entry of new players will only blur the segments New entrants will be
involved in price war to find a foothold in the Indian market Few of the examples include
TELCOs positioning of its 1400-cc Indica car--launched in November 1998 and priced close to Marutirsquos 800-cc
model as a small carand Honda sneaking its 1300-cc City into the segment vacated by the Cielo although it is
an accepted fact that pricing or positioning cannot be done in isolation In a crowded market that must depend on
the available strategic opportunities
By creating new segments companies can broaden their market base increase
capacity utilization levels pre-empt competitors market entry moves and importantly lower costs While Maruti
did that by launching three versions of the Esteem TELCO accomplished it by using a common platform for the
Sumo the Estate and the Sierra models Hyundai is also planning to come to the market with five variants in near
future At high volumes costs can be lowered by more than 20 per cent across variants due to experience curve
effect
Configuring the sticker price for a car in the market today is no more a functional
decision It has become a strategic decision as it identifies the key segmentrsquos response
23
elasticity to the market offer The two key inhibiting factors for the poor response to the auto war fare in Indian
Car Market are basically the low per capita income at $350 (Rs 14000 at current prices) and the high
manufacturing costs A large part of the population expected to graduate from two wheelers to four wheelers has
not responded as they were supposed to during this period of time The domestic auto giant Maruti Udyog
limited still forces the new players to benchmark themselves against its products which roll out from a
depreciated yet high-volume plant It enjoys the fast mover as well as the cost advantage with the higher capacity
utilisation that helps him to cut costs across as more cars you make the cheaper they get
With the worldrsquos second largest and fastest-growing population there is no doubt that Indiarsquos potential in both
economic and population terms and the effect it will have on the auto industry in the next years During the last
two years export from this sector has grown significantly owing mainly to the export of cars and two-three-
wheelers
The industry is characterized by a very high percentage (75) of production in the 23 wheeler sector India ranks
as the largest manufacturer of motorcycles and second largest in manufacturing of scooters in the world India
today is also the second largest manufacturer of tractors as well The industry has intense forward and backward
integration
The Indian automotive industry had experienced an extraordinary growth due to the improvement in the living
standards of the middle class and an increase in their disposable incomes Moreover the liberalization steps such
as relaxation of the foreign exchange and equity regulations reduction of tariffs on imports and refining the
banking policies initiated by the Government of India have played an equally important role in bringing the
Indian Automotive industry to great heights
It is estimated that the sale of passenger cars have tripled compared to their sale in the last five years Thus the
sale of cars has reached a figure of 1 million users and is expected to increase further Its also to be noted that the
24
demand for luxurious models SUVs and mini-cars for family owners have shot up largely due to increase in the
consumers buying capacity
The Indian automotive market
India country fact file 2005
Population 1 080 264388
Per Capita GDP (PPP) $3400
GDP Growth Rate 71
Total automotive sales 2005 1 439604 (889333)
Total automotive production 2005 1 643460 (1 000567)
Market growth 2005 vs 2004 70 (64)
Best sold model PC segment 2004 Maruti Alto (168)
Best sold model LCV segment 2004 Maruti Omni (213)
(passenger cars) (market share in segment)
Source httpwwwsegmentycomIndiahtm
Chapter 42 The Protected Indian Domestic Automobile Sector
MUL which set up shop in 1984 had 10 long years of relative protection to emerge as a formidable competitor
with high volume and a strong brand image in the mind of Indian customers When the industry was deregulated
in 1993 the cost barrier had become so high that new companies could not dare to look at the small car segment
25
Instead they settled for the mid-size segment where both volumes and margins were expected to be high
However a shakeout in the Indian mid-size car segment the slowdown in international auto sales pushed
transnational auto majors into India which have now turned the tide against MULThe present generation small
cars launched recently are more contemporary in terms of both design and technology while Marutis small-car
technology is at least a decade old
Keeping the future growth potential of Indian market in mind the auto majors are prepared to bear losses for the
next 10 years This will help them to gain a good market share the long run and provide breathing space to
counter the strategic moves of the leader Hence the narrowing price differential between the old and the new
small cars is the first call of the auto majors against Maruti in Indian Market If Maruti has to try and match the
features of new generation small cars it would mean additional costs On the contrary if Maruti decides to
hold its price line and add new features it could translate into losses or at least low profits But MUL can still
bank on at least two Suzuki models the proposed 657-cc Cervo C and the current 996-cc Wagon R to battle its
rivals in the future
Chapter 43 The Advent of the Auto Majors
Besides bracing up for losses in the initial years auto majors like Hyundai and Daewoo are banking on exports
too At the moment export may look unattractive because of the South Asian meltdown but in the long run low
production costs and component-manufacturing skills will make India- made cars competitive at global market
place Hence they are looking India as a production base to cater to the growing Asian market by way of
outsourcing from Indian manufacturing base However many a hurdles they have to cross on the journey to
profitability
26
The investments necessary for a large plant are simply huge Daewoo has so far sunk Rs 2700 crore in a
120-lakh-unit-a-year plant Unlike China which has restricted the number of companies India has followed an
open door policy for car manufacturers which has resulted in emergence of fragmented markets with distributed
capacity
An Original Equipment Manufacturer (OEM) needs a minimum economic size of 150 lakh cars a year to attract
vendor interest Daewoo was able to slash the Cielos price as it is cheaper to import components because of the
devaluation of the South Asian currencies The auto majors are lobbying with the government to ease the strict
indigenisation norms in the new automobile policy so that they can import the components from other countries
This will help them to cut the prices and to go head on the market leader particularly in a price responsive market
like that of small car segment
The other argument is that with the given import duty of 103 per cent on Completely Knocked-Down Kits
(CKDs) which is the same as that on Completely Built-up Units (CBUs) and 68 per cent on components the
imports will become costlier and compel companies to localize their manufacture The exposure to currency
fluctuations which crippled the four Japanese light commercial vehicle projects in the late 1980s is also minimal
when a company localizes component manufacture
Besides lean manufacturing techniques like Just-In-Time (JIT) are possible only when the supplier is located
close to the manufacturing unit If Maruti is a success story it is only because it indigenised 85 per cent of its
components within five years of going on-stream
Then theres the question of servicing the replacement market for spares Customers typically expect
components to be available locally and at competitive prices Imports cannot guarantee that but it is a
27
tremendous job to localize components at the right quality and price given the supplier problems in prevalent in
India
An Original Equipment Manufacturerrsquos competitive advantage lies in its marketing skills Having achieved price
and technology parity it can easily woo the consumer with attractive financing schemes and superior after-sales
service Nudged by the competition most auto players have a clutch of schemes to offer Daewoo Motors India
provides interestfree car finance Ford Motor and General Motors have slashed interest rates MULs joint
venture finance company Maruti Countrywide is offering loans at 1350 per cent when the prevailing lending
rate is 17 per cent and above
Chapter 44 The After Sales Service Scenario
After sales service for cars is as critical as showroom deals Maruti services its 2 million customers through an
army of 174 dealers spread across the country It will be impossible for a company to duplicate such
infrastructure particularly with investments in a metro-based showroom going up to Rs 4 crore Margins in
retailing are moving from actual sales to after sales service
The problem of price war is evident with Auto majors as much as with dealers In a bid to woo the customers
dealers particularly in non-prime locations are cutting their margins It will not be surprising if single-brand
dealers eventually turn into multi-brand sellers in future
Doing so will benefit all the three constituents in the marketing chain the OEM the dealer and the buyer The
carmaker can expand his reach without expensive investment the dealer can increase his revenue and the
customer gets a variety of models and brands under one roof in future
The local partner will be the loser in this fierce battle Without the means to make either matching equity or
technological investment the Indian collaborator will be driven off the road
28
It has already happened to the Rs 166-crore DCM which tied up with Daewoo Motors and can happen to both
the Rs 1258-crore Hindustan Motors (Partner General Motors) and the Rs 360657 crore Mahindra amp Mahindra
(Partner Ford Motor)
So they are reconciled to adopting a minority role or becoming auto component vendors This list includes
Siddharth Shrirams Rs 430-crore Siel (Partner Honda) the Kirloskars (Partner Toyota) and the Munjals of the
Rs 2000-crore Hero Group (Partner BMW) And the evidence is compelling eg Hindusthan Motors has a
passive role in its joint venture with General Motors although the Opel Astra is manufactured at HMs Halol plant
in Gujarat The same can be forecasted about Mahindra and Mahindrarsquos joint venture with Ford Motor What can
prolong the life of the joint venture is distribution muscle as it will take at least five years for a transnational auto
major to build a strong distribution channel in this country
By all accounts the auto industry is headed for a glut With an estimated demand for cars to touch 9 lakhs in
2001-2002 the installed capacity will rise to 16 lakhs So the current growth rate in Indian market is not
sustainable There will be at least two years of stagnant or declining demand before the resumption of the growth
trendThere is a projected demand of 1-lakh cars in the mid-segment alone by 2001-2002 And the car numbers
will add up to around 6 lakh a year That will engender a shakeout which is already afoot in the other Asian
markets For instance poor off -take and a consequent build-up of car inventories has led to a fierce price-war in
China
Chapter 45 Market Potential of Indian Automobile Segment
The demand for the small car will continue to drive growth for the next five years Of the total sales of Maruti in
2000-2001around 85 per cent were small cars The Esteems sales dropped in the same period where as the small
cars drove MULs sales So demand for small cars will leap only if certain conditions are fulfilled
29
Rise in the Income Levels In the US auto demand rises by 4 per cent for every 1 per cent increase in the real
Gross Domestic Product but this is irrelevant for India as only the top 150 per cent of the population
can afford a car The demand can shoot up if the income levels of the top 5 per cent continue to rise in future
Level Of Motorization It is stagnant at 170 cars per 1000 people for decades However in the post-liberalization
period the motorization level has leaped to 370 cars per 1000 Although it is still lower than the levels in the
developed markets motorization is bound to rise further in the coming years
Chapter 451 Vehicle Prices
Falling imports and excise duties coupled with competition will continue to boost demand and
the prices are likely to fall further at least in the short run
Chapter 452 Consumer Finance
Over 60 per cent of customers opt for consumer finance That figure could go up if interest
rates continue to fall
Chapter 453 Infrastructure
Traffic congestion and bad roads could deter potential buyers from going for small cars
particularly in small cities of India The future is not very heartening in this aspect
Chapter 454 Product Availability
As manufacturers shift their attention to the small car more and more people will be able to
afford it and demand will only rise in the future period of time
30
Chapter 46 The Future-Indian Automobile
There is a sharp contrast in the buying behavior of Indian Consumer compared to their western counter parts yet
there is no doubt that Indian car market is going to increasingly resemble the latter In the West the industry is
likely to be dominated by three or four major players With a likely demand of 11 lakh cars by 2006 there will be
a few niche players like BMW Mercedes-Benz and Audi with luxury cars to offer Unless car manufacturers
have a large range of vehicle to offer they will be unable to subsidize their costlier models
The market will consolidate to few segments The carmaker has to make diverse models based on diverse and
flexible platforms Products like the stripped-down economy car the sports utility vehicle or the van should be
built on the same platform For the price-sensitive customers there can be a no-frills version a loaded version for
the middle customer and luxury car manufacturers can target the high-end customers
The fortunes of the autoobile industry will continue to hinge on the large price sensitive customers who will
graduate to the higher end of the market over a period of time
Until then the small car will continue to drive demand and most of the car-manufacturers are
gearing up for this eventuality
31
Chapter 5 Company Profile
ldquoTata Motorsrdquo
32
CHAPTER 5 Company ProfileTata Motors
Tata Motors previously known as Tata Engineering and Locomotive Co Ltd (TELCO) is one of the largest
companies in the Tata Group and one of Indias largest business houses Tata Motors is Indias leading
commercial vehicle manufacturer and the third largest passenger car manufacturer The company is the sixth
largest truck manufacturer in the world Tata Motors recently received the Balanced Scorecard Collaborative Hall
of Fame Award for having achieved a significant turnaround of its overall performance A comprehensive quality
improvement and cost cutting initiative in September 2000 has played an important role in the companys
turnaround from a loss of Rs 500 crores in the year ended March 2001 to a profit of Rs 28 crores in the first
quarter of 2002-2003
Tata Engineering and Locomotive Company (TELCO)
Chapter 51 History amp Evolution
Tata Engineering and Locomotive Company Ltd popularly known as Telco was incorporated in 1945 to
manufacture steam locomotives In 1954 the company diversified into automobile manufacturing through a
collaboration with Daimler-Benz for the manufacture of commercial vehicles By the time the collaboration ended
in 1969 Telco had not only become an independent producer of medium commercial vehicles (MCVs) with
negligible import contentbut had developed the capability of designing and developing such vehicles The
Company progressively widened its product range to cover heavy commercial vehicles (HCVs) and light
commercial vehicles (LCVs) implementing one expansion program after another
To sustain the unrelenting pace of its growth Telco added machining press and assembly
33
capacities set up its own forge and foundries and virtually created the countryrsquos automobile ancillary industry
The Company even developed facilities for designing and manufacturing state-of-the-art machine tools material
handling equipment dies and fixtures To accommodate the Companyrsquos growing activity base a large modern
complex was set up at Pune in western India and a new plant became operational at Lucknow in the north of the
country
To provide a business focus for the Companyrsquos main activity areas Telco has created twobusiness unitsrsquo -
Automobiles and Construction Equipment ndash both of which have notched up record-breaking results
Telco today has a domestic market share of 68 in the MCVHCV segment 64 in the LCV segment and 32
in the multi-utility segment Apart from commercial vehicles which range from 1 ton to 35 tons GVW Telcorsquos
automobile products also include passenger vehicles and an extraordinarily popular multi-utility vehicle All these
products have been developed inhouse by the Companyrsquos own RampD Center This Center is equipped with the
latest computeraided design hardware and software enabling the company to respond quickly to changing
customer needs both in India and abroad
Telco has been exporting its products since 1969 and currently exports about a tenth of its
output Export markets include the Middle East Africa and Southeast Asia as well as
developed countries in Europe like France UK and Spain It is intended that exports should account for 20 of
the automobiles sold by the Company
Telcorsquos second line of business Construction Equipment has also grown rapidly and the
Company currently commands a 61 share in the excavator market and 90 in the crawler cranes market in
India The hydraulically operated construction equipment made by the company is in collaboration with Hitachi
34
Construction Machinery Limited of Japan There are ambitious plans for widening the range of excavators made
by the company and for adding new lines of construction equipment A recent addition to the excavator range is
Backhoe Loader
Telco is one of Indias largest private sector companies With a turnover of Rs 6637 billion it is the countrys
leading commercial vehicle manufacturer and the worldrsquos sixth largest automobile company
The widely successful Tata Indica which is Euro 1 and 2 compliant is the countryrsquos first
indigenously designed developed and manufactured passenger car The company also
makes several other passengers vehicles including the Safari the Sumo the Sierra the Tata Estate and the
Tatamobile pick-up
The companyrsquos products have received wide acceptance not only in India but also in markets in the Middle East
Asia Africa and Europe
Chapter 52 Areas of business
The company manufactures medium heavy and light commercial vehicles multi-utility
vehicles and passenger cars It also makes general and special purpose machines for
automotive applications at its machine tool division These include NCCNC horizontal and inline machining
centers flexible manufacturing systems CNC cylindrical grinding machines and robots for welding cutting
painting and other applications
In 1999 the companyrsquos revenues from its four manufacturing plants at three locations in India were Rs 6637
billion ($15735 million) In 1998 they were Rs 7026 billion ($1893 million) (The average exchange rate in
1999 was Rs 4218 to one US dollar)
35
In the year ended 31 March 2000 the companyrsquos total exports were worth about Rs 50553 crore against about
Rs 60078 crore in the previous year
Locations
The companyrsquos manufacturing plants in India are at Jamshedpur in Bihar Pimpri and
Chinchwad near Pune in Maharashtra and Lucknow in Uttar Pradesh A fifth manufacturing facility is being set
up at Dharwad in Karnataka
Collaborations
The Company has technical tie-ups with
bull The Institute of Development in Automotive Engineering SPA Italy for assistance in
small car body design and styling
bull Nachi Fujikoshi Corporation Japan for robots for welding painting and other
automotive applications
bull Le Moteur Moderne France for the development of diesel and petrol engines for
passenger cars and
bull Robert Bausch GmbH Germany for application work on the engine management
system for 4 PL petrol engines
36
Chapter 53 Tata Motors ndashSuccessful Car Indica
TELCO launched Indica when the TATA group was in red Telco chairman Ratan Tata said that the 1400 cc car
Indica would drive the company out of the red
Tata while talking to reporters at the IETF 99 in a videoconference from Mumbai said that the overwhelming
response of over 125 lakh initial bookings for the Indica had come as a surprise It seems we touched the
national chord somewhere as people responded to the fact that this is the first Indian car said Tata Indica is not
the end of the road for Telco when it comes to passenger cars It is just the beginning as there are more to come
said Tata adding that the company was working on another mid-size car after Indica
Telco had to produce 60000 cars a year to break-even The group created two
organizations within Telco one dealing with commercial vehicles and the other with passenger cars The
company under took a major restructuring exercise whereby the passenger car and commercial vehicles divisions
would function as two separate business units Telco had a strategy to go for exports after addressing the initial
requirements of the domestic market
Awards and Recognition
In May 2000 Tata Engineering and Locomotive Company Ltd (Telco) won a national award for successful
indigenous technology used in the Indica car project The award titled National award for successful
commercialization of indigenous technology by an industrial concern for indigenous development and
commercialization of Tata Indica car was presented by the minister for human resource development science and
technology and ocean development
Dr Murli Manohar Joshi
37
In November 1999 Telco was awarded the Department of scientific and industrial research
national award for indigenous design of the Tata Indica It was the first company in India to implement stringent
emission norms well ahead of the mandate dates
Promotions
The Indica advertising made interest for the car go into overdrive The campaign revolved around the premise that
the Indica would not just meet peoples expectations it would exceed them Every advertisement has a story to
tell
Pre launch Campaign
The Indica campaign began in the right earnest in December 1998 It was advertised as the launch of a car that
will spell doom for the small cars It was directly aimed at Maruti 800 The ad line used in the first campaign was
ldquoCar makers will suddenly remember all the thing they forgot to give yourdquo This hinted that Indica would have
more features than any of the existing small cars Indica used the catch lines like ldquo More car per Carrdquo ldquoMore
dreams per carrdquo to suggest that Indica will be bigger in size to the existing small cars yet be in the small car
category It competes with the mid size cars on size and give them a run for their money with its cheaper price
tag
At the launch of the car TELCO claimed that the people would never have to suffer from a small car again and
that the n end of the year (1998) would be the end of the small cars
Launch Campaign
The launch campaign of Indica focussed on the many advantages that it offered over other cars in the same
segment It promised the customers more than the current offerings Its first advertisement carried the following
catch line ldquo50cc moped 100cc bike 800cc car Time you asked for morerdquo
38
It then concentrated its efforts on criticizing the negative aspects of Maruti 800 and highlighted how Indica has
removed those very defects and presented a very sophisticated and modern car to the Indian customer It even
pointed out that the shape of Maruti was very unconventional and that people would prefer the shape of Indica to
Maruti 800 The advertisement read ldquo Box shaped bubble shaped wedge shaped But then Gentlemen prefer
curvesrdquo
The launch campaign also focussed on the roomy interiors of Indica a feature not offered by Maruti at that point
of time Also the expertise of TATA in diesel engines and fuel efficiency of these were the highlight of the launch
campaign of Tata Indica
Post Launch Campaigns
While the Launch campaign focussed on the features of Indica the post launch advertisements focussed on the
superior after sales service and longer warranty periods offered by Indica
Telco was the first company to offer an 18-month warranty period on engine parts The most famous line used
during this campaign was ldquoWe could go on and on about service or give you the one word summary TATArdquo
While their main adversary was the Maruti 800 Telco felt that it could also tap the mid size segment using the
selling point of space given by Indica They carried a campaign which said ldquoForget small cars we even make big
cars feel smallrdquo
It then went on to highlight the fact that Indica was Euro II compliant even before it was legally binding upon car
manufacturers to do so It also highlighted the concrete wall safety test that Indica withstands and tried to
showcase the car as a safe and strong car
39
Chapter 6 COST REDUCTION TECHNIQUES
IN TATA MOTORSrsquoS INDICA
40
Chapter 6 Tata Indica - The Making Of The Small Car
with objective of minimizing costs
The research provides an understanding of the issues concerning the supply chain management system at
Telco in regard to its small car Indica It outlines how Telco built the supply chain for the car by leveraging its
existing competencies and how it transformed itself from an integrated truck manufacturer to an automobile
integrator and from a product-centric company to competence- centric company The case discusses various
components of the supply chain and emphasises how Telco orchestrated them with the objective of minimizing
costs
ldquoTelcorsquos 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 comerdquo
- Business India March 22 1999
In the early 1990s Telcorsquos Chairman Ratan Tata (Tata) was flirting with the idea of developing a small
car By mid-1994 a rudimentary design was in place In 1995 Telco announced that it planned to build a car
which would be priced close to the Maruti 800 shaped like the Zen and spacious as an Ambassador
Producing the new small car ndash Indica ndash represented a different kind of challenge for Telco Should Tata succeed he
would change the face of Telco As a truck-maker Telco was so integrated that it even made it own castings and
forgings As an automaker it would have to focus on the value chain that stretched between raw materials and after-sales
41
service as well as assembling the parts into the complete automobile
For its new venture Telco outsourced 80 of the components (1200 of its 1500-plus parts) from 200-odd vendors To
develop the Indica Telco had to combine the learnings from its predecessors with its own unique supply chain
management strategies to ensure a sustainable low-cost platform
By learning to build and manage a supply chain it would set the ground for leveraging the capabilities of the
automotive component-manufacturers who already operated in its target markets In other words Telco planned
to use its skills as an integrator--bringing together products and services from both upstream and downstream
operations and packaging them for the customer under a brand name in its new venture
Globally a car could be built in 48 months with an investment of US $ 3 billion (Rs 1275 billion) Indica was
built in 31 months on a budget of Rs 17 billion This seemed to have been possible by focussing on the supply
chain
Chapter 61 THE OUTSOURCING STRATEGY
For Telco outsourcing seemed to be one of the most difficult aspects of producing the Indica Unlike global
automobile majors Ford Motors or General Motors which had a global vendor-base that could be replicated on
a smaller scale in India Telco had to create a vendor-base from scratch Moreover it did not have the expertise
either to design a car or to build an engine for it
Against this background Telco had to take its primary lsquomake-or-buyrsquo decisions for the key inputs-design
engine and transmission Telco decided to shop globally for the best deals and use its own expertise to make
42
whatever modifications were needed
(Refer Table I for the components outsourced by Telco)
TABLE I
OUTSOURCING THE COMPONENTS
Components Supplier
5 door hatchback IDEA Italy
Engine Institut Francais du Petrol
France
Assembly Line Nissanrsquos Plant Australia
Presses Mercedes Benz
Pistons and Piston rings India Pistons
Electrical components and fuel injection
systems Lucas-TVS
Steering systems Rane TRW Steering Systems
Clutch facings and rear (drum) brake linings Sundaram Brake Linings (SBL)
Seating Systems Tata-Johnson Controls
Radiators Tata-Toyo
Rear view mirrors Tata-Ficosa
Front and rear bumper dash-board inside
trims Tata-Auto Plastics
Air conditioning kits Subros Ltd
Wind screens and windows Asahi Glass
Fuel lines Imperial Auto
Differential assemblies Sona Steering
43
Sheet metal items JBM Tools
Source Business Today March 22 1999 and December 7 1999
Telco turned to the Italian company IDEA for the product-design It bought the engine from the Institut
Francais du Petrol of France and applied its engineering skills to adapt the engine requirements The transmission
was developed in-house at its Engineering Research Centre (ERC) at Pune Of the Rs 25 billion it spent on
designing the Indica the major share went in buying design tools and training its engineers in new skills Telcorsquos
engineers traveled regularly to the sites of its technology suppliers to receive training before the actual delivery
of the machines
Telco also outsourced its assembly line from Nissanrsquos plant in Australia for just Rs 900 million Telco
transplanted it at its factory at Chikli near Pune which was newly set up for Indica A new assembly line of the
same proportions would have cost at least Rs 4 billion Again of the 3 presses for the Indica only 1 was new
acquired for Rs 900 million while the other 2 were bought second-hand from Mercedes-Benz and modified to
suit the Indica
Telcorsquos engineers and the ERC did the application engineering programming installation and commissioning to
save around 45 of the technology costs The tooling for the car too was supplied internally by Telcorsquos machine
tool division To manage the supply chain better Telco kept the number of suppliers for Indica to just 200 as
compared to about 1000 for trucks Most of the parts were supplied by Telcorsquos traditional suppliersmdash TVS Rane
Group and Tata Auto Component Systems (Taco) who were single source suppliers Pressed parts assemblies
and drive shafts were sourced from single vendors
44
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
(b) Study of Effective Cost Reduction techniques in Procurement of Raw Materials
(c) Study of Effective Cost Reduction techniques in Operational Management
According to the Council of Logistics Management Supply Chain Management ldquothe process of planning
implementing and controlling efficient and cost effective flow of materials in-process inventory finished goods
and related information from point-of-order to point-of-consumption for the purpose of conforming to customer
requirements as efficiently as possiblerdquo The automobile industry has undergone significant structural and other
changes in the last decade or so In view of the present globalisation implementation of lean production and the
development of modularisation have changed the relationships between automobile assemblers (OEMs) and their
suppliers especially those in the first tierStiff competition among manufacturers will result in more mergers or
acquisitions The challenges automobile manufacturers and suppliers face include improving quality meeting cost
reduction targets and developing time to market
CHAPTER 22 Hypothesis
Is Automobile companies are following certain guidelines for Operations or not
Hypo 1- Network Planning ndash This is one of the most important issues for SCM
Determination of production requirements and inventory levels at the vendorrsquos facility for each product and
development of transportation flows between these facilities to the warehouses in a best possible way to reduce
total production inventory and ransportation costs with fulfilment of service level requirements
10
Hypo 2- IT and Decision Support Systemndash
This is another important challenge for SCM Today SCM is driven by the scope and opportunities appearing due
to abundance of data and the savings which can be achieved through efficient analysis of these data What data
should be transferred with its significance and most importantly what infrastructure is required internally and
between its partners is very important
Hypo 3- Supply chain integration and strategic partnering ndash
In SCM information sharing and operational planning are crucial for successfully integrated supply chain
CHAPTER 23 RESEARCH DESIGN
The study was conducted on part of Business Expansion plan of Automobile industry to expand their
existing Business On this part Exploratory Survey was conducted to know about Operatational Strategies of
automobile companies
This Market research is EXPLORATORY RESEARCH DESIGN Arguments in favors of EXPLORATORY
RESEARCH DESIGN is-
-It tests the Hypothesis examines the relationship and comes to a conclusion It test Hypothesis whether -
Is Automobile Companies using Network Planning
Is Automobile Companies using IT and Decision Support system
Is Automobile Companies Using Supply Chain Integration And Strategic Partnering
Findings and analysis are used for Decision making on account of Surveyed Data
11
In This type of Exploratory Research design involves Collection of Information from Secondary Data
In this Automobile Survey The whole study is Secondary data based oriented
a Secondary Data from Internet on Manufacturing Industries
b Journals on Cost reduction Techniques on manufacturing Industries
c Scholarly articles for brief about indian manufacturing industries
d Books on Operational management
e Review Articles on Supply Chain-Upstream and Down stream
f Study for Opeartion Research Techniques- Transportation Techniques
CHAPTER 24 Scope of the Study
Among the studys key findings are
Indian automobile and auto components industry is on a roll and there is an immense scope for management
for enhancing the supply chain of the sector India has become a favourable destination for foreign companies
to establish their facilities and form alliances with domestic companies Low cost of manufacturing
and conducive government support have been the major drivers for foreign companies investing in India
Indiarsquos large young population higher GDP growth and most importantly per capita passenger car penetration
is low at 85 car per thousand population which creates great opportunity for industry players to offer
an affordable four-wheeler alternative to the two-wheeler customers According to Planning Commission of India
Indian automobile industry is expected to grow at CAGR of 15 over the next five years The Indian economy is
12
now gaining momentum in the world of free trade and liberal movements of goods and services between
countries Therefore efficiency in supply will be critical for Indiarsquos automobile success
NEED FOR MATERIALS-SYSTEMS APPROACH
Improved materials and materials processing can and must play a large role in generating productive and effective
responses to the forces that will drive the automotive industry in the future However these forces often pull in
diverse directions when specific technological actions are considered For example aluminum alloys can be used
to reduce vehicle weight thereby reducing emissions and improving fuel economy but the added materials costs
currently offset these advantages for many applications As a result steel is still the major material of choice for
automobile construction today and will be difficult to supplant for the foreseeable future
Indiarsquos process-engineering potential can be utilised for redesigning of manufacturing
processes to make them more labour intensive and less capital intensive which will enable the MNCrsquos to reduce
their overall costs substantially For instance de-automating of the production processes which are applied in
Western countriesrsquo factories can reduce the overall manufacturing cost of some components by up to 20
In case of product engineering India has emerged as a leading destination in the world
Indiarsquos strength is in its design which helps in reducing costs For instance redesign of the Maruti Altorsquos steering
system has cut down its weight by 15 India with its skilled engineers can design a product very fast which in
turn reduces its development cost and lead times For example an Indian supplier took six months to design a
steering system for an automaker It took more than four years to develop similar system with suppliers in the
other low-cost countries Several automobile manufacturers have already set up their auto component facilities in
India
13
CHAPTER 25 Limitations
For Automobile Study Primary Data varies wrt Secondary Data on account of theoretical practices in field then
practical theories
With increasing disposable incomes and ever-growing burden on the public modes of transport the Indian
passenger car industry is heading for a bright future provided car manufacturers offer a world class cars that give
value for money use novel marketing concepts to entice potential buyers and offer good after-sales service
Demand for passenger cars in FY2002 is projected at approximately 970755 units while production is expected
to reach 1210000 units The year is likely to witness a spurt in exports due to excess supply and liberalization of
export policy by the government
Some of the future strategies that need to be addressed while entering in to Indian small car market include the
redesign of the vehicle to suit the Indian road conditions and to develop aggressive marketing strategy to counter
the cost advantage enjoyed by dominant players like Maruti due to high capacity utilization With growing
number of two wheeler owners opting for used cars vehicles with higher resale value and excellent service
network are likely to account for a major market share in the near future Moreover the introduction of Euro III
and Euro IV norms in the near future is likely to increase the scrapping rates of cars
Exports are likely to increase in the near future with the entry of international car giants like Daewoo Hyundai
Honda Siel GM and Ford that intend to use India as a manufacturing production base
14
Chapter 3 CRITICAL REVIEW OF
LITERATURE
15
CHAPTER 3 CRITICAL REVIEW OF LITERATURE
A just released customer research study titled Customers Say What Companies Dont Want to Hear throws a
bucket of ice water in the face of some core business management tenets mdash plus a number of keystone principles
of the marketing advertising and customer relationship management (CRM) industries
Greenberg adds Customers Say What Companies Dont Want To Hear proves a mission-critical strategic point
Businesses need to rethink their logic and develop new operating models based on customer centric behaviors and
valuations
Commenting on the findings Paul Greenberg author of the industry best-seller CRM at the Speed of Light
Customer Strategies for the 21st Century says Lee and Mangen have verified and amplified with hard data
the growing perception that the new breed of customer is here to stay and businesses need to react mdash or risk their
very existence
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 While a top manager should be the ideal customer he
should also be the greatest critic of his companys products If the CEO compromises or is only looking at the
margins then even if he is successful the companys success will be short lived
- Ratan Tata the Chairman Tata Group
16
Chapter 31 Automobile Market Overview
The domestic automobile market has been growing at 142 per cent CAGR over the past 4 years (2000-01 to
2004-05) while the auto components market has been growing at 192 per cent CAGR (2000-01 to 2003-04) The
industry (OEMs and suppliers together) contributed nearly 4 per cent to the countryrsquos GDP in 2003-04 The
automotive sector also offers significant employment opportunities It employs 045 million people directly and
around 10 million people indirectly
The industryrsquos capabilities in design engineering and manufacturing have been recognised the world over and
most automotive majors are looking to increasingly source auto components from India
India is emerging as one of the most attractive automotive markets in the world and is poised to become a key
sourcing base for auto components The table below captures the highlights of the sector in India that illustrates
its growing significanceSee Annexure A amp B
Indian Automobile Industry
Largest three wheeler market in the world
2nd largest two wheeler market in the world
4th largest passenger vehicle market in Asia
4th largest tractor market in the world
5th largest commercial vehicle market in the world
17
Chapter 32 Automobiles - Domestic Performance
The production and domestic sales of the automobiles in India have been growing strongly While production
increased from 48 million units in 2000-1 to 85 million units in 2004-05 (a CAGR of over 15 per cent) domestic
sales during the same period have gone up from 46 million to 79 million units (CAGR 142 per cent) A positive
trend in the domestic market is that the growth has not been driven by one or two segments but is consistent
across all key segments Two wheelers which constitute the majority of the industry volume have been growing
at a rate of 143 per cent three wheelers at a rate of 14 per cent and passenger vehicles at a rate of 113 per cent
Commercial vehicles have been growing at a higher rate of nearly 235 per cent although from a lower base
Since nearly all macro-economic indicators ndash GDP infrastructure population demographics interest rates etc ndash
are showing a favourable trend the domestic market for automobiles in India is expected to continue on its
growth trajectory
Chapter 33 Exports of automobiles from India
While the domestic sales of automobiles have been increasing at a significant rate exports have taken a quantum
leap in recent years The exports of automobiles from India have been growing at a CAGR of 39 per cent for the
past four years Exports growth has been spearheaded by the passenger vehicle segment which has grown at a
rate of 574 per cent
As a result the share of passenger vehicles in overall vehicle exports has increased from 18 per cent in 1998-99 to
26 per cent in 2004-05 Europe is the biggest importer of cars from the country while predominantly African
nations import buses and trucks The Association of South East Asian Nations (ASEAN) region is
the prime destination for Indian two wheelers
18
Chapter 34 REVIEW OF THESIS DONE
This is easy to understand because the per capita disposable income of the people has gone up remarkably Over
the last five years per capita personal disposable income has gone up by around 8 which has increased
purchasing capacity of the people in the country Other factors have also contributed to this high growth in Indian
automobile sector These include lowering age of first car users shorter replacement cycles rising duel income
families nw technology which is lowering cost of ownership low car penetration in the country and most
importantly growing steel production in the country In addition wide variety and easily available financing
options are also some of the major reasons for surge in demand for automobiles in India
Global automobile manufacturers are consistently streamlining their business process by outsourcing their non-
core activities to low-cost countries like IndiaGlobal automobile manufacturers are under tremendous pressures
to innovate their manufacturing process and at the same time to reduce costs In view of the present global
competitiveness they must not only develop new features to strengthen their customer requirements but also
follow the environmental and safety standards In addition the base price of a car is expected to remain same over
the next decade As a result companies are forced to source more components from low-cost countries like India
According to Mckinsey global outsourcing of automobile and auto components would reach US$375 billion by
2015 from US$65 billion in 2002 India has plenty of scope to garner this potential According to the management
consulting firm India has the potential to notch this opportunity and reach up to US$25 billion to emerge as
major sourcing destinations along with China Mexico and Thailand Besides low cost Indias auto components
industry has the major advantage of enormous skills in process product and capital engineeringmdashits excellent
manufacturing history and good education system
19
Human beings think our way is the best but at Toyota we are told we have to always change We believe there is
no perfect way so we continue to search The goal is to break the current condition through Kaizen
- Shoichiro Toyoda Chairman Toyota Motor Corporation in December 2000
When Kaizen is applied to the workplace it means continuous improvement for - managers and workers Thus
Kaizen involves everyone in an organization to make improvements without large capital investments It can be
seen as a culture of continuous sustained improvement focusing on eliminating waste in all systems and
processes The Kaizen strategy begins and ends with people With Kaizen an involved leadership guides people
continuously to improve their abilities to meet high quality expectations low cost and on-time delivery which in
turn helps the organization gain a competitive edge
The production divisions council which checked the plants objectives occasionally modifying them taking into
account the companys profit targets replaced the production allowance councils After approval these objectives
became the Kaizen norm of each plant in terms of production efficiency The method of determining the
production efficiency was altered to make it less constrained as the standard time was fixed by measuring the time
really required for workers operations whereas earlier standard time was fixed on the basis of the best standard
time marked in the past
20
Chapter 4 Industry Profile
21
CHAPTER 4 Industry Profile
The Trans-nationals were also serious about developing vendors in India India is
bound to become an important destination for the global auto industry It took the financial turmoil in South East
Asia and the slowdown in the Chinese auto market to reinforce the targeting to Indian Market The new interest in
the small car segment also reflects certain amount of bullishness on the part of auto manufacturers about India
Despite projected over capacities--and current losses carmakers continued to queue
up their investments for small car segment To day there are 10 global auto majorsmdashincluding the $13-billion
Suzuki Motor (Japan) the $65-billion Daewoo (South Korea) the $147-billion Ford (US) the $47-billion Fiat
(Italy) and the $168-billion General Motors (US) operating in Indian Market
Chapter 41 The Pre 1997 Automobile Market
As late as 1997 the auto market in India was clearly segmented At the entry level
were MULs 800-cc car--priced between Rs 210-lakh and Rs 245 lakh--and the Omni at Rs 175 lakh At the
next level were the 993-cc Zen--priced at Rs 370 lakh--and the 999-cc Fiat Uno (Rs 362 lakh) Then came the
1300-cc Esteem models--priced between Rs 469 lakh and Rs 595 lakh--the 1498-cc Cielo (Rs 620 lakh) and
the 1598-cc Opel Astra (Rs 752 lakh) followed by premium cars like Mercedes-Benzs E-220 (Rs 22 lakh)
Changing Lanes
Two events have upset the equations in the price-segmented car market Daewoo has
Changed the lanes with the Cielo which is now priced at Rs 490 lakh and competes with the Zens top-end
model (Rs 440 lakh) and the Esteems lower-end version (Rs 469 lakh) Ceilo has created a new value segment
where the price is not proportionate to the size Daewoos strategic response has very clearly redefined
differentiation from price or size to value
22
Hyundai Motors India a subsidiary of the $27-billion Hyundai of South Korea launched
its 999-cc Santro at the Auto Expo 1998 in Delhi The model comes in five variants with the non-air-
conditioned manual transmission model priced at Rs 280 lakh and the semiautomatic air-conditioned GLS
model priced between Rs 315 lakh and Rs 4 lakh ClearlyHyundais strategy is aimed at taking on the market
leader Maruti Udyog Limited But by pricing the deluxe model at Rs 4 lakh it is also bridging the gap between
the small and the middle car segments At present Marutirsquos Esteem LX is priced Rs 70000 more than the
Santro GLS while the Cielo is priced Rs 90000 more
The further entry of new players will only blur the segments New entrants will be
involved in price war to find a foothold in the Indian market Few of the examples include
TELCOs positioning of its 1400-cc Indica car--launched in November 1998 and priced close to Marutirsquos 800-cc
model as a small carand Honda sneaking its 1300-cc City into the segment vacated by the Cielo although it is
an accepted fact that pricing or positioning cannot be done in isolation In a crowded market that must depend on
the available strategic opportunities
By creating new segments companies can broaden their market base increase
capacity utilization levels pre-empt competitors market entry moves and importantly lower costs While Maruti
did that by launching three versions of the Esteem TELCO accomplished it by using a common platform for the
Sumo the Estate and the Sierra models Hyundai is also planning to come to the market with five variants in near
future At high volumes costs can be lowered by more than 20 per cent across variants due to experience curve
effect
Configuring the sticker price for a car in the market today is no more a functional
decision It has become a strategic decision as it identifies the key segmentrsquos response
23
elasticity to the market offer The two key inhibiting factors for the poor response to the auto war fare in Indian
Car Market are basically the low per capita income at $350 (Rs 14000 at current prices) and the high
manufacturing costs A large part of the population expected to graduate from two wheelers to four wheelers has
not responded as they were supposed to during this period of time The domestic auto giant Maruti Udyog
limited still forces the new players to benchmark themselves against its products which roll out from a
depreciated yet high-volume plant It enjoys the fast mover as well as the cost advantage with the higher capacity
utilisation that helps him to cut costs across as more cars you make the cheaper they get
With the worldrsquos second largest and fastest-growing population there is no doubt that Indiarsquos potential in both
economic and population terms and the effect it will have on the auto industry in the next years During the last
two years export from this sector has grown significantly owing mainly to the export of cars and two-three-
wheelers
The industry is characterized by a very high percentage (75) of production in the 23 wheeler sector India ranks
as the largest manufacturer of motorcycles and second largest in manufacturing of scooters in the world India
today is also the second largest manufacturer of tractors as well The industry has intense forward and backward
integration
The Indian automotive industry had experienced an extraordinary growth due to the improvement in the living
standards of the middle class and an increase in their disposable incomes Moreover the liberalization steps such
as relaxation of the foreign exchange and equity regulations reduction of tariffs on imports and refining the
banking policies initiated by the Government of India have played an equally important role in bringing the
Indian Automotive industry to great heights
It is estimated that the sale of passenger cars have tripled compared to their sale in the last five years Thus the
sale of cars has reached a figure of 1 million users and is expected to increase further Its also to be noted that the
24
demand for luxurious models SUVs and mini-cars for family owners have shot up largely due to increase in the
consumers buying capacity
The Indian automotive market
India country fact file 2005
Population 1 080 264388
Per Capita GDP (PPP) $3400
GDP Growth Rate 71
Total automotive sales 2005 1 439604 (889333)
Total automotive production 2005 1 643460 (1 000567)
Market growth 2005 vs 2004 70 (64)
Best sold model PC segment 2004 Maruti Alto (168)
Best sold model LCV segment 2004 Maruti Omni (213)
(passenger cars) (market share in segment)
Source httpwwwsegmentycomIndiahtm
Chapter 42 The Protected Indian Domestic Automobile Sector
MUL which set up shop in 1984 had 10 long years of relative protection to emerge as a formidable competitor
with high volume and a strong brand image in the mind of Indian customers When the industry was deregulated
in 1993 the cost barrier had become so high that new companies could not dare to look at the small car segment
25
Instead they settled for the mid-size segment where both volumes and margins were expected to be high
However a shakeout in the Indian mid-size car segment the slowdown in international auto sales pushed
transnational auto majors into India which have now turned the tide against MULThe present generation small
cars launched recently are more contemporary in terms of both design and technology while Marutis small-car
technology is at least a decade old
Keeping the future growth potential of Indian market in mind the auto majors are prepared to bear losses for the
next 10 years This will help them to gain a good market share the long run and provide breathing space to
counter the strategic moves of the leader Hence the narrowing price differential between the old and the new
small cars is the first call of the auto majors against Maruti in Indian Market If Maruti has to try and match the
features of new generation small cars it would mean additional costs On the contrary if Maruti decides to
hold its price line and add new features it could translate into losses or at least low profits But MUL can still
bank on at least two Suzuki models the proposed 657-cc Cervo C and the current 996-cc Wagon R to battle its
rivals in the future
Chapter 43 The Advent of the Auto Majors
Besides bracing up for losses in the initial years auto majors like Hyundai and Daewoo are banking on exports
too At the moment export may look unattractive because of the South Asian meltdown but in the long run low
production costs and component-manufacturing skills will make India- made cars competitive at global market
place Hence they are looking India as a production base to cater to the growing Asian market by way of
outsourcing from Indian manufacturing base However many a hurdles they have to cross on the journey to
profitability
26
The investments necessary for a large plant are simply huge Daewoo has so far sunk Rs 2700 crore in a
120-lakh-unit-a-year plant Unlike China which has restricted the number of companies India has followed an
open door policy for car manufacturers which has resulted in emergence of fragmented markets with distributed
capacity
An Original Equipment Manufacturer (OEM) needs a minimum economic size of 150 lakh cars a year to attract
vendor interest Daewoo was able to slash the Cielos price as it is cheaper to import components because of the
devaluation of the South Asian currencies The auto majors are lobbying with the government to ease the strict
indigenisation norms in the new automobile policy so that they can import the components from other countries
This will help them to cut the prices and to go head on the market leader particularly in a price responsive market
like that of small car segment
The other argument is that with the given import duty of 103 per cent on Completely Knocked-Down Kits
(CKDs) which is the same as that on Completely Built-up Units (CBUs) and 68 per cent on components the
imports will become costlier and compel companies to localize their manufacture The exposure to currency
fluctuations which crippled the four Japanese light commercial vehicle projects in the late 1980s is also minimal
when a company localizes component manufacture
Besides lean manufacturing techniques like Just-In-Time (JIT) are possible only when the supplier is located
close to the manufacturing unit If Maruti is a success story it is only because it indigenised 85 per cent of its
components within five years of going on-stream
Then theres the question of servicing the replacement market for spares Customers typically expect
components to be available locally and at competitive prices Imports cannot guarantee that but it is a
27
tremendous job to localize components at the right quality and price given the supplier problems in prevalent in
India
An Original Equipment Manufacturerrsquos competitive advantage lies in its marketing skills Having achieved price
and technology parity it can easily woo the consumer with attractive financing schemes and superior after-sales
service Nudged by the competition most auto players have a clutch of schemes to offer Daewoo Motors India
provides interestfree car finance Ford Motor and General Motors have slashed interest rates MULs joint
venture finance company Maruti Countrywide is offering loans at 1350 per cent when the prevailing lending
rate is 17 per cent and above
Chapter 44 The After Sales Service Scenario
After sales service for cars is as critical as showroom deals Maruti services its 2 million customers through an
army of 174 dealers spread across the country It will be impossible for a company to duplicate such
infrastructure particularly with investments in a metro-based showroom going up to Rs 4 crore Margins in
retailing are moving from actual sales to after sales service
The problem of price war is evident with Auto majors as much as with dealers In a bid to woo the customers
dealers particularly in non-prime locations are cutting their margins It will not be surprising if single-brand
dealers eventually turn into multi-brand sellers in future
Doing so will benefit all the three constituents in the marketing chain the OEM the dealer and the buyer The
carmaker can expand his reach without expensive investment the dealer can increase his revenue and the
customer gets a variety of models and brands under one roof in future
The local partner will be the loser in this fierce battle Without the means to make either matching equity or
technological investment the Indian collaborator will be driven off the road
28
It has already happened to the Rs 166-crore DCM which tied up with Daewoo Motors and can happen to both
the Rs 1258-crore Hindustan Motors (Partner General Motors) and the Rs 360657 crore Mahindra amp Mahindra
(Partner Ford Motor)
So they are reconciled to adopting a minority role or becoming auto component vendors This list includes
Siddharth Shrirams Rs 430-crore Siel (Partner Honda) the Kirloskars (Partner Toyota) and the Munjals of the
Rs 2000-crore Hero Group (Partner BMW) And the evidence is compelling eg Hindusthan Motors has a
passive role in its joint venture with General Motors although the Opel Astra is manufactured at HMs Halol plant
in Gujarat The same can be forecasted about Mahindra and Mahindrarsquos joint venture with Ford Motor What can
prolong the life of the joint venture is distribution muscle as it will take at least five years for a transnational auto
major to build a strong distribution channel in this country
By all accounts the auto industry is headed for a glut With an estimated demand for cars to touch 9 lakhs in
2001-2002 the installed capacity will rise to 16 lakhs So the current growth rate in Indian market is not
sustainable There will be at least two years of stagnant or declining demand before the resumption of the growth
trendThere is a projected demand of 1-lakh cars in the mid-segment alone by 2001-2002 And the car numbers
will add up to around 6 lakh a year That will engender a shakeout which is already afoot in the other Asian
markets For instance poor off -take and a consequent build-up of car inventories has led to a fierce price-war in
China
Chapter 45 Market Potential of Indian Automobile Segment
The demand for the small car will continue to drive growth for the next five years Of the total sales of Maruti in
2000-2001around 85 per cent were small cars The Esteems sales dropped in the same period where as the small
cars drove MULs sales So demand for small cars will leap only if certain conditions are fulfilled
29
Rise in the Income Levels In the US auto demand rises by 4 per cent for every 1 per cent increase in the real
Gross Domestic Product but this is irrelevant for India as only the top 150 per cent of the population
can afford a car The demand can shoot up if the income levels of the top 5 per cent continue to rise in future
Level Of Motorization It is stagnant at 170 cars per 1000 people for decades However in the post-liberalization
period the motorization level has leaped to 370 cars per 1000 Although it is still lower than the levels in the
developed markets motorization is bound to rise further in the coming years
Chapter 451 Vehicle Prices
Falling imports and excise duties coupled with competition will continue to boost demand and
the prices are likely to fall further at least in the short run
Chapter 452 Consumer Finance
Over 60 per cent of customers opt for consumer finance That figure could go up if interest
rates continue to fall
Chapter 453 Infrastructure
Traffic congestion and bad roads could deter potential buyers from going for small cars
particularly in small cities of India The future is not very heartening in this aspect
Chapter 454 Product Availability
As manufacturers shift their attention to the small car more and more people will be able to
afford it and demand will only rise in the future period of time
30
Chapter 46 The Future-Indian Automobile
There is a sharp contrast in the buying behavior of Indian Consumer compared to their western counter parts yet
there is no doubt that Indian car market is going to increasingly resemble the latter In the West the industry is
likely to be dominated by three or four major players With a likely demand of 11 lakh cars by 2006 there will be
a few niche players like BMW Mercedes-Benz and Audi with luxury cars to offer Unless car manufacturers
have a large range of vehicle to offer they will be unable to subsidize their costlier models
The market will consolidate to few segments The carmaker has to make diverse models based on diverse and
flexible platforms Products like the stripped-down economy car the sports utility vehicle or the van should be
built on the same platform For the price-sensitive customers there can be a no-frills version a loaded version for
the middle customer and luxury car manufacturers can target the high-end customers
The fortunes of the autoobile industry will continue to hinge on the large price sensitive customers who will
graduate to the higher end of the market over a period of time
Until then the small car will continue to drive demand and most of the car-manufacturers are
gearing up for this eventuality
31
Chapter 5 Company Profile
ldquoTata Motorsrdquo
32
CHAPTER 5 Company ProfileTata Motors
Tata Motors previously known as Tata Engineering and Locomotive Co Ltd (TELCO) is one of the largest
companies in the Tata Group and one of Indias largest business houses Tata Motors is Indias leading
commercial vehicle manufacturer and the third largest passenger car manufacturer The company is the sixth
largest truck manufacturer in the world Tata Motors recently received the Balanced Scorecard Collaborative Hall
of Fame Award for having achieved a significant turnaround of its overall performance A comprehensive quality
improvement and cost cutting initiative in September 2000 has played an important role in the companys
turnaround from a loss of Rs 500 crores in the year ended March 2001 to a profit of Rs 28 crores in the first
quarter of 2002-2003
Tata Engineering and Locomotive Company (TELCO)
Chapter 51 History amp Evolution
Tata Engineering and Locomotive Company Ltd popularly known as Telco was incorporated in 1945 to
manufacture steam locomotives In 1954 the company diversified into automobile manufacturing through a
collaboration with Daimler-Benz for the manufacture of commercial vehicles By the time the collaboration ended
in 1969 Telco had not only become an independent producer of medium commercial vehicles (MCVs) with
negligible import contentbut had developed the capability of designing and developing such vehicles The
Company progressively widened its product range to cover heavy commercial vehicles (HCVs) and light
commercial vehicles (LCVs) implementing one expansion program after another
To sustain the unrelenting pace of its growth Telco added machining press and assembly
33
capacities set up its own forge and foundries and virtually created the countryrsquos automobile ancillary industry
The Company even developed facilities for designing and manufacturing state-of-the-art machine tools material
handling equipment dies and fixtures To accommodate the Companyrsquos growing activity base a large modern
complex was set up at Pune in western India and a new plant became operational at Lucknow in the north of the
country
To provide a business focus for the Companyrsquos main activity areas Telco has created twobusiness unitsrsquo -
Automobiles and Construction Equipment ndash both of which have notched up record-breaking results
Telco today has a domestic market share of 68 in the MCVHCV segment 64 in the LCV segment and 32
in the multi-utility segment Apart from commercial vehicles which range from 1 ton to 35 tons GVW Telcorsquos
automobile products also include passenger vehicles and an extraordinarily popular multi-utility vehicle All these
products have been developed inhouse by the Companyrsquos own RampD Center This Center is equipped with the
latest computeraided design hardware and software enabling the company to respond quickly to changing
customer needs both in India and abroad
Telco has been exporting its products since 1969 and currently exports about a tenth of its
output Export markets include the Middle East Africa and Southeast Asia as well as
developed countries in Europe like France UK and Spain It is intended that exports should account for 20 of
the automobiles sold by the Company
Telcorsquos second line of business Construction Equipment has also grown rapidly and the
Company currently commands a 61 share in the excavator market and 90 in the crawler cranes market in
India The hydraulically operated construction equipment made by the company is in collaboration with Hitachi
34
Construction Machinery Limited of Japan There are ambitious plans for widening the range of excavators made
by the company and for adding new lines of construction equipment A recent addition to the excavator range is
Backhoe Loader
Telco is one of Indias largest private sector companies With a turnover of Rs 6637 billion it is the countrys
leading commercial vehicle manufacturer and the worldrsquos sixth largest automobile company
The widely successful Tata Indica which is Euro 1 and 2 compliant is the countryrsquos first
indigenously designed developed and manufactured passenger car The company also
makes several other passengers vehicles including the Safari the Sumo the Sierra the Tata Estate and the
Tatamobile pick-up
The companyrsquos products have received wide acceptance not only in India but also in markets in the Middle East
Asia Africa and Europe
Chapter 52 Areas of business
The company manufactures medium heavy and light commercial vehicles multi-utility
vehicles and passenger cars It also makes general and special purpose machines for
automotive applications at its machine tool division These include NCCNC horizontal and inline machining
centers flexible manufacturing systems CNC cylindrical grinding machines and robots for welding cutting
painting and other applications
In 1999 the companyrsquos revenues from its four manufacturing plants at three locations in India were Rs 6637
billion ($15735 million) In 1998 they were Rs 7026 billion ($1893 million) (The average exchange rate in
1999 was Rs 4218 to one US dollar)
35
In the year ended 31 March 2000 the companyrsquos total exports were worth about Rs 50553 crore against about
Rs 60078 crore in the previous year
Locations
The companyrsquos manufacturing plants in India are at Jamshedpur in Bihar Pimpri and
Chinchwad near Pune in Maharashtra and Lucknow in Uttar Pradesh A fifth manufacturing facility is being set
up at Dharwad in Karnataka
Collaborations
The Company has technical tie-ups with
bull The Institute of Development in Automotive Engineering SPA Italy for assistance in
small car body design and styling
bull Nachi Fujikoshi Corporation Japan for robots for welding painting and other
automotive applications
bull Le Moteur Moderne France for the development of diesel and petrol engines for
passenger cars and
bull Robert Bausch GmbH Germany for application work on the engine management
system for 4 PL petrol engines
36
Chapter 53 Tata Motors ndashSuccessful Car Indica
TELCO launched Indica when the TATA group was in red Telco chairman Ratan Tata said that the 1400 cc car
Indica would drive the company out of the red
Tata while talking to reporters at the IETF 99 in a videoconference from Mumbai said that the overwhelming
response of over 125 lakh initial bookings for the Indica had come as a surprise It seems we touched the
national chord somewhere as people responded to the fact that this is the first Indian car said Tata Indica is not
the end of the road for Telco when it comes to passenger cars It is just the beginning as there are more to come
said Tata adding that the company was working on another mid-size car after Indica
Telco had to produce 60000 cars a year to break-even The group created two
organizations within Telco one dealing with commercial vehicles and the other with passenger cars The
company under took a major restructuring exercise whereby the passenger car and commercial vehicles divisions
would function as two separate business units Telco had a strategy to go for exports after addressing the initial
requirements of the domestic market
Awards and Recognition
In May 2000 Tata Engineering and Locomotive Company Ltd (Telco) won a national award for successful
indigenous technology used in the Indica car project The award titled National award for successful
commercialization of indigenous technology by an industrial concern for indigenous development and
commercialization of Tata Indica car was presented by the minister for human resource development science and
technology and ocean development
Dr Murli Manohar Joshi
37
In November 1999 Telco was awarded the Department of scientific and industrial research
national award for indigenous design of the Tata Indica It was the first company in India to implement stringent
emission norms well ahead of the mandate dates
Promotions
The Indica advertising made interest for the car go into overdrive The campaign revolved around the premise that
the Indica would not just meet peoples expectations it would exceed them Every advertisement has a story to
tell
Pre launch Campaign
The Indica campaign began in the right earnest in December 1998 It was advertised as the launch of a car that
will spell doom for the small cars It was directly aimed at Maruti 800 The ad line used in the first campaign was
ldquoCar makers will suddenly remember all the thing they forgot to give yourdquo This hinted that Indica would have
more features than any of the existing small cars Indica used the catch lines like ldquo More car per Carrdquo ldquoMore
dreams per carrdquo to suggest that Indica will be bigger in size to the existing small cars yet be in the small car
category It competes with the mid size cars on size and give them a run for their money with its cheaper price
tag
At the launch of the car TELCO claimed that the people would never have to suffer from a small car again and
that the n end of the year (1998) would be the end of the small cars
Launch Campaign
The launch campaign of Indica focussed on the many advantages that it offered over other cars in the same
segment It promised the customers more than the current offerings Its first advertisement carried the following
catch line ldquo50cc moped 100cc bike 800cc car Time you asked for morerdquo
38
It then concentrated its efforts on criticizing the negative aspects of Maruti 800 and highlighted how Indica has
removed those very defects and presented a very sophisticated and modern car to the Indian customer It even
pointed out that the shape of Maruti was very unconventional and that people would prefer the shape of Indica to
Maruti 800 The advertisement read ldquo Box shaped bubble shaped wedge shaped But then Gentlemen prefer
curvesrdquo
The launch campaign also focussed on the roomy interiors of Indica a feature not offered by Maruti at that point
of time Also the expertise of TATA in diesel engines and fuel efficiency of these were the highlight of the launch
campaign of Tata Indica
Post Launch Campaigns
While the Launch campaign focussed on the features of Indica the post launch advertisements focussed on the
superior after sales service and longer warranty periods offered by Indica
Telco was the first company to offer an 18-month warranty period on engine parts The most famous line used
during this campaign was ldquoWe could go on and on about service or give you the one word summary TATArdquo
While their main adversary was the Maruti 800 Telco felt that it could also tap the mid size segment using the
selling point of space given by Indica They carried a campaign which said ldquoForget small cars we even make big
cars feel smallrdquo
It then went on to highlight the fact that Indica was Euro II compliant even before it was legally binding upon car
manufacturers to do so It also highlighted the concrete wall safety test that Indica withstands and tried to
showcase the car as a safe and strong car
39
Chapter 6 COST REDUCTION TECHNIQUES
IN TATA MOTORSrsquoS INDICA
40
Chapter 6 Tata Indica - The Making Of The Small Car
with objective of minimizing costs
The research provides an understanding of the issues concerning the supply chain management system at
Telco in regard to its small car Indica It outlines how Telco built the supply chain for the car by leveraging its
existing competencies and how it transformed itself from an integrated truck manufacturer to an automobile
integrator and from a product-centric company to competence- centric company The case discusses various
components of the supply chain and emphasises how Telco orchestrated them with the objective of minimizing
costs
ldquoTelcorsquos 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 comerdquo
- Business India March 22 1999
In the early 1990s Telcorsquos Chairman Ratan Tata (Tata) was flirting with the idea of developing a small
car By mid-1994 a rudimentary design was in place In 1995 Telco announced that it planned to build a car
which would be priced close to the Maruti 800 shaped like the Zen and spacious as an Ambassador
Producing the new small car ndash Indica ndash represented a different kind of challenge for Telco Should Tata succeed he
would change the face of Telco As a truck-maker Telco was so integrated that it even made it own castings and
forgings As an automaker it would have to focus on the value chain that stretched between raw materials and after-sales
41
service as well as assembling the parts into the complete automobile
For its new venture Telco outsourced 80 of the components (1200 of its 1500-plus parts) from 200-odd vendors To
develop the Indica Telco had to combine the learnings from its predecessors with its own unique supply chain
management strategies to ensure a sustainable low-cost platform
By learning to build and manage a supply chain it would set the ground for leveraging the capabilities of the
automotive component-manufacturers who already operated in its target markets In other words Telco planned
to use its skills as an integrator--bringing together products and services from both upstream and downstream
operations and packaging them for the customer under a brand name in its new venture
Globally a car could be built in 48 months with an investment of US $ 3 billion (Rs 1275 billion) Indica was
built in 31 months on a budget of Rs 17 billion This seemed to have been possible by focussing on the supply
chain
Chapter 61 THE OUTSOURCING STRATEGY
For Telco outsourcing seemed to be one of the most difficult aspects of producing the Indica Unlike global
automobile majors Ford Motors or General Motors which had a global vendor-base that could be replicated on
a smaller scale in India Telco had to create a vendor-base from scratch Moreover it did not have the expertise
either to design a car or to build an engine for it
Against this background Telco had to take its primary lsquomake-or-buyrsquo decisions for the key inputs-design
engine and transmission Telco decided to shop globally for the best deals and use its own expertise to make
42
whatever modifications were needed
(Refer Table I for the components outsourced by Telco)
TABLE I
OUTSOURCING THE COMPONENTS
Components Supplier
5 door hatchback IDEA Italy
Engine Institut Francais du Petrol
France
Assembly Line Nissanrsquos Plant Australia
Presses Mercedes Benz
Pistons and Piston rings India Pistons
Electrical components and fuel injection
systems Lucas-TVS
Steering systems Rane TRW Steering Systems
Clutch facings and rear (drum) brake linings Sundaram Brake Linings (SBL)
Seating Systems Tata-Johnson Controls
Radiators Tata-Toyo
Rear view mirrors Tata-Ficosa
Front and rear bumper dash-board inside
trims Tata-Auto Plastics
Air conditioning kits Subros Ltd
Wind screens and windows Asahi Glass
Fuel lines Imperial Auto
Differential assemblies Sona Steering
43
Sheet metal items JBM Tools
Source Business Today March 22 1999 and December 7 1999
Telco turned to the Italian company IDEA for the product-design It bought the engine from the Institut
Francais du Petrol of France and applied its engineering skills to adapt the engine requirements The transmission
was developed in-house at its Engineering Research Centre (ERC) at Pune Of the Rs 25 billion it spent on
designing the Indica the major share went in buying design tools and training its engineers in new skills Telcorsquos
engineers traveled regularly to the sites of its technology suppliers to receive training before the actual delivery
of the machines
Telco also outsourced its assembly line from Nissanrsquos plant in Australia for just Rs 900 million Telco
transplanted it at its factory at Chikli near Pune which was newly set up for Indica A new assembly line of the
same proportions would have cost at least Rs 4 billion Again of the 3 presses for the Indica only 1 was new
acquired for Rs 900 million while the other 2 were bought second-hand from Mercedes-Benz and modified to
suit the Indica
Telcorsquos engineers and the ERC did the application engineering programming installation and commissioning to
save around 45 of the technology costs The tooling for the car too was supplied internally by Telcorsquos machine
tool division To manage the supply chain better Telco kept the number of suppliers for Indica to just 200 as
compared to about 1000 for trucks Most of the parts were supplied by Telcorsquos traditional suppliersmdash TVS Rane
Group and Tata Auto Component Systems (Taco) who were single source suppliers Pressed parts assemblies
and drive shafts were sourced from single vendors
44
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
Hypo 2- IT and Decision Support Systemndash
This is another important challenge for SCM Today SCM is driven by the scope and opportunities appearing due
to abundance of data and the savings which can be achieved through efficient analysis of these data What data
should be transferred with its significance and most importantly what infrastructure is required internally and
between its partners is very important
Hypo 3- Supply chain integration and strategic partnering ndash
In SCM information sharing and operational planning are crucial for successfully integrated supply chain
CHAPTER 23 RESEARCH DESIGN
The study was conducted on part of Business Expansion plan of Automobile industry to expand their
existing Business On this part Exploratory Survey was conducted to know about Operatational Strategies of
automobile companies
This Market research is EXPLORATORY RESEARCH DESIGN Arguments in favors of EXPLORATORY
RESEARCH DESIGN is-
-It tests the Hypothesis examines the relationship and comes to a conclusion It test Hypothesis whether -
Is Automobile Companies using Network Planning
Is Automobile Companies using IT and Decision Support system
Is Automobile Companies Using Supply Chain Integration And Strategic Partnering
Findings and analysis are used for Decision making on account of Surveyed Data
11
In This type of Exploratory Research design involves Collection of Information from Secondary Data
In this Automobile Survey The whole study is Secondary data based oriented
a Secondary Data from Internet on Manufacturing Industries
b Journals on Cost reduction Techniques on manufacturing Industries
c Scholarly articles for brief about indian manufacturing industries
d Books on Operational management
e Review Articles on Supply Chain-Upstream and Down stream
f Study for Opeartion Research Techniques- Transportation Techniques
CHAPTER 24 Scope of the Study
Among the studys key findings are
Indian automobile and auto components industry is on a roll and there is an immense scope for management
for enhancing the supply chain of the sector India has become a favourable destination for foreign companies
to establish their facilities and form alliances with domestic companies Low cost of manufacturing
and conducive government support have been the major drivers for foreign companies investing in India
Indiarsquos large young population higher GDP growth and most importantly per capita passenger car penetration
is low at 85 car per thousand population which creates great opportunity for industry players to offer
an affordable four-wheeler alternative to the two-wheeler customers According to Planning Commission of India
Indian automobile industry is expected to grow at CAGR of 15 over the next five years The Indian economy is
12
now gaining momentum in the world of free trade and liberal movements of goods and services between
countries Therefore efficiency in supply will be critical for Indiarsquos automobile success
NEED FOR MATERIALS-SYSTEMS APPROACH
Improved materials and materials processing can and must play a large role in generating productive and effective
responses to the forces that will drive the automotive industry in the future However these forces often pull in
diverse directions when specific technological actions are considered For example aluminum alloys can be used
to reduce vehicle weight thereby reducing emissions and improving fuel economy but the added materials costs
currently offset these advantages for many applications As a result steel is still the major material of choice for
automobile construction today and will be difficult to supplant for the foreseeable future
Indiarsquos process-engineering potential can be utilised for redesigning of manufacturing
processes to make them more labour intensive and less capital intensive which will enable the MNCrsquos to reduce
their overall costs substantially For instance de-automating of the production processes which are applied in
Western countriesrsquo factories can reduce the overall manufacturing cost of some components by up to 20
In case of product engineering India has emerged as a leading destination in the world
Indiarsquos strength is in its design which helps in reducing costs For instance redesign of the Maruti Altorsquos steering
system has cut down its weight by 15 India with its skilled engineers can design a product very fast which in
turn reduces its development cost and lead times For example an Indian supplier took six months to design a
steering system for an automaker It took more than four years to develop similar system with suppliers in the
other low-cost countries Several automobile manufacturers have already set up their auto component facilities in
India
13
CHAPTER 25 Limitations
For Automobile Study Primary Data varies wrt Secondary Data on account of theoretical practices in field then
practical theories
With increasing disposable incomes and ever-growing burden on the public modes of transport the Indian
passenger car industry is heading for a bright future provided car manufacturers offer a world class cars that give
value for money use novel marketing concepts to entice potential buyers and offer good after-sales service
Demand for passenger cars in FY2002 is projected at approximately 970755 units while production is expected
to reach 1210000 units The year is likely to witness a spurt in exports due to excess supply and liberalization of
export policy by the government
Some of the future strategies that need to be addressed while entering in to Indian small car market include the
redesign of the vehicle to suit the Indian road conditions and to develop aggressive marketing strategy to counter
the cost advantage enjoyed by dominant players like Maruti due to high capacity utilization With growing
number of two wheeler owners opting for used cars vehicles with higher resale value and excellent service
network are likely to account for a major market share in the near future Moreover the introduction of Euro III
and Euro IV norms in the near future is likely to increase the scrapping rates of cars
Exports are likely to increase in the near future with the entry of international car giants like Daewoo Hyundai
Honda Siel GM and Ford that intend to use India as a manufacturing production base
14
Chapter 3 CRITICAL REVIEW OF
LITERATURE
15
CHAPTER 3 CRITICAL REVIEW OF LITERATURE
A just released customer research study titled Customers Say What Companies Dont Want to Hear throws a
bucket of ice water in the face of some core business management tenets mdash plus a number of keystone principles
of the marketing advertising and customer relationship management (CRM) industries
Greenberg adds Customers Say What Companies Dont Want To Hear proves a mission-critical strategic point
Businesses need to rethink their logic and develop new operating models based on customer centric behaviors and
valuations
Commenting on the findings Paul Greenberg author of the industry best-seller CRM at the Speed of Light
Customer Strategies for the 21st Century says Lee and Mangen have verified and amplified with hard data
the growing perception that the new breed of customer is here to stay and businesses need to react mdash or risk their
very existence
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 While a top manager should be the ideal customer he
should also be the greatest critic of his companys products If the CEO compromises or is only looking at the
margins then even if he is successful the companys success will be short lived
- Ratan Tata the Chairman Tata Group
16
Chapter 31 Automobile Market Overview
The domestic automobile market has been growing at 142 per cent CAGR over the past 4 years (2000-01 to
2004-05) while the auto components market has been growing at 192 per cent CAGR (2000-01 to 2003-04) The
industry (OEMs and suppliers together) contributed nearly 4 per cent to the countryrsquos GDP in 2003-04 The
automotive sector also offers significant employment opportunities It employs 045 million people directly and
around 10 million people indirectly
The industryrsquos capabilities in design engineering and manufacturing have been recognised the world over and
most automotive majors are looking to increasingly source auto components from India
India is emerging as one of the most attractive automotive markets in the world and is poised to become a key
sourcing base for auto components The table below captures the highlights of the sector in India that illustrates
its growing significanceSee Annexure A amp B
Indian Automobile Industry
Largest three wheeler market in the world
2nd largest two wheeler market in the world
4th largest passenger vehicle market in Asia
4th largest tractor market in the world
5th largest commercial vehicle market in the world
17
Chapter 32 Automobiles - Domestic Performance
The production and domestic sales of the automobiles in India have been growing strongly While production
increased from 48 million units in 2000-1 to 85 million units in 2004-05 (a CAGR of over 15 per cent) domestic
sales during the same period have gone up from 46 million to 79 million units (CAGR 142 per cent) A positive
trend in the domestic market is that the growth has not been driven by one or two segments but is consistent
across all key segments Two wheelers which constitute the majority of the industry volume have been growing
at a rate of 143 per cent three wheelers at a rate of 14 per cent and passenger vehicles at a rate of 113 per cent
Commercial vehicles have been growing at a higher rate of nearly 235 per cent although from a lower base
Since nearly all macro-economic indicators ndash GDP infrastructure population demographics interest rates etc ndash
are showing a favourable trend the domestic market for automobiles in India is expected to continue on its
growth trajectory
Chapter 33 Exports of automobiles from India
While the domestic sales of automobiles have been increasing at a significant rate exports have taken a quantum
leap in recent years The exports of automobiles from India have been growing at a CAGR of 39 per cent for the
past four years Exports growth has been spearheaded by the passenger vehicle segment which has grown at a
rate of 574 per cent
As a result the share of passenger vehicles in overall vehicle exports has increased from 18 per cent in 1998-99 to
26 per cent in 2004-05 Europe is the biggest importer of cars from the country while predominantly African
nations import buses and trucks The Association of South East Asian Nations (ASEAN) region is
the prime destination for Indian two wheelers
18
Chapter 34 REVIEW OF THESIS DONE
This is easy to understand because the per capita disposable income of the people has gone up remarkably Over
the last five years per capita personal disposable income has gone up by around 8 which has increased
purchasing capacity of the people in the country Other factors have also contributed to this high growth in Indian
automobile sector These include lowering age of first car users shorter replacement cycles rising duel income
families nw technology which is lowering cost of ownership low car penetration in the country and most
importantly growing steel production in the country In addition wide variety and easily available financing
options are also some of the major reasons for surge in demand for automobiles in India
Global automobile manufacturers are consistently streamlining their business process by outsourcing their non-
core activities to low-cost countries like IndiaGlobal automobile manufacturers are under tremendous pressures
to innovate their manufacturing process and at the same time to reduce costs In view of the present global
competitiveness they must not only develop new features to strengthen their customer requirements but also
follow the environmental and safety standards In addition the base price of a car is expected to remain same over
the next decade As a result companies are forced to source more components from low-cost countries like India
According to Mckinsey global outsourcing of automobile and auto components would reach US$375 billion by
2015 from US$65 billion in 2002 India has plenty of scope to garner this potential According to the management
consulting firm India has the potential to notch this opportunity and reach up to US$25 billion to emerge as
major sourcing destinations along with China Mexico and Thailand Besides low cost Indias auto components
industry has the major advantage of enormous skills in process product and capital engineeringmdashits excellent
manufacturing history and good education system
19
Human beings think our way is the best but at Toyota we are told we have to always change We believe there is
no perfect way so we continue to search The goal is to break the current condition through Kaizen
- Shoichiro Toyoda Chairman Toyota Motor Corporation in December 2000
When Kaizen is applied to the workplace it means continuous improvement for - managers and workers Thus
Kaizen involves everyone in an organization to make improvements without large capital investments It can be
seen as a culture of continuous sustained improvement focusing on eliminating waste in all systems and
processes The Kaizen strategy begins and ends with people With Kaizen an involved leadership guides people
continuously to improve their abilities to meet high quality expectations low cost and on-time delivery which in
turn helps the organization gain a competitive edge
The production divisions council which checked the plants objectives occasionally modifying them taking into
account the companys profit targets replaced the production allowance councils After approval these objectives
became the Kaizen norm of each plant in terms of production efficiency The method of determining the
production efficiency was altered to make it less constrained as the standard time was fixed by measuring the time
really required for workers operations whereas earlier standard time was fixed on the basis of the best standard
time marked in the past
20
Chapter 4 Industry Profile
21
CHAPTER 4 Industry Profile
The Trans-nationals were also serious about developing vendors in India India is
bound to become an important destination for the global auto industry It took the financial turmoil in South East
Asia and the slowdown in the Chinese auto market to reinforce the targeting to Indian Market The new interest in
the small car segment also reflects certain amount of bullishness on the part of auto manufacturers about India
Despite projected over capacities--and current losses carmakers continued to queue
up their investments for small car segment To day there are 10 global auto majorsmdashincluding the $13-billion
Suzuki Motor (Japan) the $65-billion Daewoo (South Korea) the $147-billion Ford (US) the $47-billion Fiat
(Italy) and the $168-billion General Motors (US) operating in Indian Market
Chapter 41 The Pre 1997 Automobile Market
As late as 1997 the auto market in India was clearly segmented At the entry level
were MULs 800-cc car--priced between Rs 210-lakh and Rs 245 lakh--and the Omni at Rs 175 lakh At the
next level were the 993-cc Zen--priced at Rs 370 lakh--and the 999-cc Fiat Uno (Rs 362 lakh) Then came the
1300-cc Esteem models--priced between Rs 469 lakh and Rs 595 lakh--the 1498-cc Cielo (Rs 620 lakh) and
the 1598-cc Opel Astra (Rs 752 lakh) followed by premium cars like Mercedes-Benzs E-220 (Rs 22 lakh)
Changing Lanes
Two events have upset the equations in the price-segmented car market Daewoo has
Changed the lanes with the Cielo which is now priced at Rs 490 lakh and competes with the Zens top-end
model (Rs 440 lakh) and the Esteems lower-end version (Rs 469 lakh) Ceilo has created a new value segment
where the price is not proportionate to the size Daewoos strategic response has very clearly redefined
differentiation from price or size to value
22
Hyundai Motors India a subsidiary of the $27-billion Hyundai of South Korea launched
its 999-cc Santro at the Auto Expo 1998 in Delhi The model comes in five variants with the non-air-
conditioned manual transmission model priced at Rs 280 lakh and the semiautomatic air-conditioned GLS
model priced between Rs 315 lakh and Rs 4 lakh ClearlyHyundais strategy is aimed at taking on the market
leader Maruti Udyog Limited But by pricing the deluxe model at Rs 4 lakh it is also bridging the gap between
the small and the middle car segments At present Marutirsquos Esteem LX is priced Rs 70000 more than the
Santro GLS while the Cielo is priced Rs 90000 more
The further entry of new players will only blur the segments New entrants will be
involved in price war to find a foothold in the Indian market Few of the examples include
TELCOs positioning of its 1400-cc Indica car--launched in November 1998 and priced close to Marutirsquos 800-cc
model as a small carand Honda sneaking its 1300-cc City into the segment vacated by the Cielo although it is
an accepted fact that pricing or positioning cannot be done in isolation In a crowded market that must depend on
the available strategic opportunities
By creating new segments companies can broaden their market base increase
capacity utilization levels pre-empt competitors market entry moves and importantly lower costs While Maruti
did that by launching three versions of the Esteem TELCO accomplished it by using a common platform for the
Sumo the Estate and the Sierra models Hyundai is also planning to come to the market with five variants in near
future At high volumes costs can be lowered by more than 20 per cent across variants due to experience curve
effect
Configuring the sticker price for a car in the market today is no more a functional
decision It has become a strategic decision as it identifies the key segmentrsquos response
23
elasticity to the market offer The two key inhibiting factors for the poor response to the auto war fare in Indian
Car Market are basically the low per capita income at $350 (Rs 14000 at current prices) and the high
manufacturing costs A large part of the population expected to graduate from two wheelers to four wheelers has
not responded as they were supposed to during this period of time The domestic auto giant Maruti Udyog
limited still forces the new players to benchmark themselves against its products which roll out from a
depreciated yet high-volume plant It enjoys the fast mover as well as the cost advantage with the higher capacity
utilisation that helps him to cut costs across as more cars you make the cheaper they get
With the worldrsquos second largest and fastest-growing population there is no doubt that Indiarsquos potential in both
economic and population terms and the effect it will have on the auto industry in the next years During the last
two years export from this sector has grown significantly owing mainly to the export of cars and two-three-
wheelers
The industry is characterized by a very high percentage (75) of production in the 23 wheeler sector India ranks
as the largest manufacturer of motorcycles and second largest in manufacturing of scooters in the world India
today is also the second largest manufacturer of tractors as well The industry has intense forward and backward
integration
The Indian automotive industry had experienced an extraordinary growth due to the improvement in the living
standards of the middle class and an increase in their disposable incomes Moreover the liberalization steps such
as relaxation of the foreign exchange and equity regulations reduction of tariffs on imports and refining the
banking policies initiated by the Government of India have played an equally important role in bringing the
Indian Automotive industry to great heights
It is estimated that the sale of passenger cars have tripled compared to their sale in the last five years Thus the
sale of cars has reached a figure of 1 million users and is expected to increase further Its also to be noted that the
24
demand for luxurious models SUVs and mini-cars for family owners have shot up largely due to increase in the
consumers buying capacity
The Indian automotive market
India country fact file 2005
Population 1 080 264388
Per Capita GDP (PPP) $3400
GDP Growth Rate 71
Total automotive sales 2005 1 439604 (889333)
Total automotive production 2005 1 643460 (1 000567)
Market growth 2005 vs 2004 70 (64)
Best sold model PC segment 2004 Maruti Alto (168)
Best sold model LCV segment 2004 Maruti Omni (213)
(passenger cars) (market share in segment)
Source httpwwwsegmentycomIndiahtm
Chapter 42 The Protected Indian Domestic Automobile Sector
MUL which set up shop in 1984 had 10 long years of relative protection to emerge as a formidable competitor
with high volume and a strong brand image in the mind of Indian customers When the industry was deregulated
in 1993 the cost barrier had become so high that new companies could not dare to look at the small car segment
25
Instead they settled for the mid-size segment where both volumes and margins were expected to be high
However a shakeout in the Indian mid-size car segment the slowdown in international auto sales pushed
transnational auto majors into India which have now turned the tide against MULThe present generation small
cars launched recently are more contemporary in terms of both design and technology while Marutis small-car
technology is at least a decade old
Keeping the future growth potential of Indian market in mind the auto majors are prepared to bear losses for the
next 10 years This will help them to gain a good market share the long run and provide breathing space to
counter the strategic moves of the leader Hence the narrowing price differential between the old and the new
small cars is the first call of the auto majors against Maruti in Indian Market If Maruti has to try and match the
features of new generation small cars it would mean additional costs On the contrary if Maruti decides to
hold its price line and add new features it could translate into losses or at least low profits But MUL can still
bank on at least two Suzuki models the proposed 657-cc Cervo C and the current 996-cc Wagon R to battle its
rivals in the future
Chapter 43 The Advent of the Auto Majors
Besides bracing up for losses in the initial years auto majors like Hyundai and Daewoo are banking on exports
too At the moment export may look unattractive because of the South Asian meltdown but in the long run low
production costs and component-manufacturing skills will make India- made cars competitive at global market
place Hence they are looking India as a production base to cater to the growing Asian market by way of
outsourcing from Indian manufacturing base However many a hurdles they have to cross on the journey to
profitability
26
The investments necessary for a large plant are simply huge Daewoo has so far sunk Rs 2700 crore in a
120-lakh-unit-a-year plant Unlike China which has restricted the number of companies India has followed an
open door policy for car manufacturers which has resulted in emergence of fragmented markets with distributed
capacity
An Original Equipment Manufacturer (OEM) needs a minimum economic size of 150 lakh cars a year to attract
vendor interest Daewoo was able to slash the Cielos price as it is cheaper to import components because of the
devaluation of the South Asian currencies The auto majors are lobbying with the government to ease the strict
indigenisation norms in the new automobile policy so that they can import the components from other countries
This will help them to cut the prices and to go head on the market leader particularly in a price responsive market
like that of small car segment
The other argument is that with the given import duty of 103 per cent on Completely Knocked-Down Kits
(CKDs) which is the same as that on Completely Built-up Units (CBUs) and 68 per cent on components the
imports will become costlier and compel companies to localize their manufacture The exposure to currency
fluctuations which crippled the four Japanese light commercial vehicle projects in the late 1980s is also minimal
when a company localizes component manufacture
Besides lean manufacturing techniques like Just-In-Time (JIT) are possible only when the supplier is located
close to the manufacturing unit If Maruti is a success story it is only because it indigenised 85 per cent of its
components within five years of going on-stream
Then theres the question of servicing the replacement market for spares Customers typically expect
components to be available locally and at competitive prices Imports cannot guarantee that but it is a
27
tremendous job to localize components at the right quality and price given the supplier problems in prevalent in
India
An Original Equipment Manufacturerrsquos competitive advantage lies in its marketing skills Having achieved price
and technology parity it can easily woo the consumer with attractive financing schemes and superior after-sales
service Nudged by the competition most auto players have a clutch of schemes to offer Daewoo Motors India
provides interestfree car finance Ford Motor and General Motors have slashed interest rates MULs joint
venture finance company Maruti Countrywide is offering loans at 1350 per cent when the prevailing lending
rate is 17 per cent and above
Chapter 44 The After Sales Service Scenario
After sales service for cars is as critical as showroom deals Maruti services its 2 million customers through an
army of 174 dealers spread across the country It will be impossible for a company to duplicate such
infrastructure particularly with investments in a metro-based showroom going up to Rs 4 crore Margins in
retailing are moving from actual sales to after sales service
The problem of price war is evident with Auto majors as much as with dealers In a bid to woo the customers
dealers particularly in non-prime locations are cutting their margins It will not be surprising if single-brand
dealers eventually turn into multi-brand sellers in future
Doing so will benefit all the three constituents in the marketing chain the OEM the dealer and the buyer The
carmaker can expand his reach without expensive investment the dealer can increase his revenue and the
customer gets a variety of models and brands under one roof in future
The local partner will be the loser in this fierce battle Without the means to make either matching equity or
technological investment the Indian collaborator will be driven off the road
28
It has already happened to the Rs 166-crore DCM which tied up with Daewoo Motors and can happen to both
the Rs 1258-crore Hindustan Motors (Partner General Motors) and the Rs 360657 crore Mahindra amp Mahindra
(Partner Ford Motor)
So they are reconciled to adopting a minority role or becoming auto component vendors This list includes
Siddharth Shrirams Rs 430-crore Siel (Partner Honda) the Kirloskars (Partner Toyota) and the Munjals of the
Rs 2000-crore Hero Group (Partner BMW) And the evidence is compelling eg Hindusthan Motors has a
passive role in its joint venture with General Motors although the Opel Astra is manufactured at HMs Halol plant
in Gujarat The same can be forecasted about Mahindra and Mahindrarsquos joint venture with Ford Motor What can
prolong the life of the joint venture is distribution muscle as it will take at least five years for a transnational auto
major to build a strong distribution channel in this country
By all accounts the auto industry is headed for a glut With an estimated demand for cars to touch 9 lakhs in
2001-2002 the installed capacity will rise to 16 lakhs So the current growth rate in Indian market is not
sustainable There will be at least two years of stagnant or declining demand before the resumption of the growth
trendThere is a projected demand of 1-lakh cars in the mid-segment alone by 2001-2002 And the car numbers
will add up to around 6 lakh a year That will engender a shakeout which is already afoot in the other Asian
markets For instance poor off -take and a consequent build-up of car inventories has led to a fierce price-war in
China
Chapter 45 Market Potential of Indian Automobile Segment
The demand for the small car will continue to drive growth for the next five years Of the total sales of Maruti in
2000-2001around 85 per cent were small cars The Esteems sales dropped in the same period where as the small
cars drove MULs sales So demand for small cars will leap only if certain conditions are fulfilled
29
Rise in the Income Levels In the US auto demand rises by 4 per cent for every 1 per cent increase in the real
Gross Domestic Product but this is irrelevant for India as only the top 150 per cent of the population
can afford a car The demand can shoot up if the income levels of the top 5 per cent continue to rise in future
Level Of Motorization It is stagnant at 170 cars per 1000 people for decades However in the post-liberalization
period the motorization level has leaped to 370 cars per 1000 Although it is still lower than the levels in the
developed markets motorization is bound to rise further in the coming years
Chapter 451 Vehicle Prices
Falling imports and excise duties coupled with competition will continue to boost demand and
the prices are likely to fall further at least in the short run
Chapter 452 Consumer Finance
Over 60 per cent of customers opt for consumer finance That figure could go up if interest
rates continue to fall
Chapter 453 Infrastructure
Traffic congestion and bad roads could deter potential buyers from going for small cars
particularly in small cities of India The future is not very heartening in this aspect
Chapter 454 Product Availability
As manufacturers shift their attention to the small car more and more people will be able to
afford it and demand will only rise in the future period of time
30
Chapter 46 The Future-Indian Automobile
There is a sharp contrast in the buying behavior of Indian Consumer compared to their western counter parts yet
there is no doubt that Indian car market is going to increasingly resemble the latter In the West the industry is
likely to be dominated by three or four major players With a likely demand of 11 lakh cars by 2006 there will be
a few niche players like BMW Mercedes-Benz and Audi with luxury cars to offer Unless car manufacturers
have a large range of vehicle to offer they will be unable to subsidize their costlier models
The market will consolidate to few segments The carmaker has to make diverse models based on diverse and
flexible platforms Products like the stripped-down economy car the sports utility vehicle or the van should be
built on the same platform For the price-sensitive customers there can be a no-frills version a loaded version for
the middle customer and luxury car manufacturers can target the high-end customers
The fortunes of the autoobile industry will continue to hinge on the large price sensitive customers who will
graduate to the higher end of the market over a period of time
Until then the small car will continue to drive demand and most of the car-manufacturers are
gearing up for this eventuality
31
Chapter 5 Company Profile
ldquoTata Motorsrdquo
32
CHAPTER 5 Company ProfileTata Motors
Tata Motors previously known as Tata Engineering and Locomotive Co Ltd (TELCO) is one of the largest
companies in the Tata Group and one of Indias largest business houses Tata Motors is Indias leading
commercial vehicle manufacturer and the third largest passenger car manufacturer The company is the sixth
largest truck manufacturer in the world Tata Motors recently received the Balanced Scorecard Collaborative Hall
of Fame Award for having achieved a significant turnaround of its overall performance A comprehensive quality
improvement and cost cutting initiative in September 2000 has played an important role in the companys
turnaround from a loss of Rs 500 crores in the year ended March 2001 to a profit of Rs 28 crores in the first
quarter of 2002-2003
Tata Engineering and Locomotive Company (TELCO)
Chapter 51 History amp Evolution
Tata Engineering and Locomotive Company Ltd popularly known as Telco was incorporated in 1945 to
manufacture steam locomotives In 1954 the company diversified into automobile manufacturing through a
collaboration with Daimler-Benz for the manufacture of commercial vehicles By the time the collaboration ended
in 1969 Telco had not only become an independent producer of medium commercial vehicles (MCVs) with
negligible import contentbut had developed the capability of designing and developing such vehicles The
Company progressively widened its product range to cover heavy commercial vehicles (HCVs) and light
commercial vehicles (LCVs) implementing one expansion program after another
To sustain the unrelenting pace of its growth Telco added machining press and assembly
33
capacities set up its own forge and foundries and virtually created the countryrsquos automobile ancillary industry
The Company even developed facilities for designing and manufacturing state-of-the-art machine tools material
handling equipment dies and fixtures To accommodate the Companyrsquos growing activity base a large modern
complex was set up at Pune in western India and a new plant became operational at Lucknow in the north of the
country
To provide a business focus for the Companyrsquos main activity areas Telco has created twobusiness unitsrsquo -
Automobiles and Construction Equipment ndash both of which have notched up record-breaking results
Telco today has a domestic market share of 68 in the MCVHCV segment 64 in the LCV segment and 32
in the multi-utility segment Apart from commercial vehicles which range from 1 ton to 35 tons GVW Telcorsquos
automobile products also include passenger vehicles and an extraordinarily popular multi-utility vehicle All these
products have been developed inhouse by the Companyrsquos own RampD Center This Center is equipped with the
latest computeraided design hardware and software enabling the company to respond quickly to changing
customer needs both in India and abroad
Telco has been exporting its products since 1969 and currently exports about a tenth of its
output Export markets include the Middle East Africa and Southeast Asia as well as
developed countries in Europe like France UK and Spain It is intended that exports should account for 20 of
the automobiles sold by the Company
Telcorsquos second line of business Construction Equipment has also grown rapidly and the
Company currently commands a 61 share in the excavator market and 90 in the crawler cranes market in
India The hydraulically operated construction equipment made by the company is in collaboration with Hitachi
34
Construction Machinery Limited of Japan There are ambitious plans for widening the range of excavators made
by the company and for adding new lines of construction equipment A recent addition to the excavator range is
Backhoe Loader
Telco is one of Indias largest private sector companies With a turnover of Rs 6637 billion it is the countrys
leading commercial vehicle manufacturer and the worldrsquos sixth largest automobile company
The widely successful Tata Indica which is Euro 1 and 2 compliant is the countryrsquos first
indigenously designed developed and manufactured passenger car The company also
makes several other passengers vehicles including the Safari the Sumo the Sierra the Tata Estate and the
Tatamobile pick-up
The companyrsquos products have received wide acceptance not only in India but also in markets in the Middle East
Asia Africa and Europe
Chapter 52 Areas of business
The company manufactures medium heavy and light commercial vehicles multi-utility
vehicles and passenger cars It also makes general and special purpose machines for
automotive applications at its machine tool division These include NCCNC horizontal and inline machining
centers flexible manufacturing systems CNC cylindrical grinding machines and robots for welding cutting
painting and other applications
In 1999 the companyrsquos revenues from its four manufacturing plants at three locations in India were Rs 6637
billion ($15735 million) In 1998 they were Rs 7026 billion ($1893 million) (The average exchange rate in
1999 was Rs 4218 to one US dollar)
35
In the year ended 31 March 2000 the companyrsquos total exports were worth about Rs 50553 crore against about
Rs 60078 crore in the previous year
Locations
The companyrsquos manufacturing plants in India are at Jamshedpur in Bihar Pimpri and
Chinchwad near Pune in Maharashtra and Lucknow in Uttar Pradesh A fifth manufacturing facility is being set
up at Dharwad in Karnataka
Collaborations
The Company has technical tie-ups with
bull The Institute of Development in Automotive Engineering SPA Italy for assistance in
small car body design and styling
bull Nachi Fujikoshi Corporation Japan for robots for welding painting and other
automotive applications
bull Le Moteur Moderne France for the development of diesel and petrol engines for
passenger cars and
bull Robert Bausch GmbH Germany for application work on the engine management
system for 4 PL petrol engines
36
Chapter 53 Tata Motors ndashSuccessful Car Indica
TELCO launched Indica when the TATA group was in red Telco chairman Ratan Tata said that the 1400 cc car
Indica would drive the company out of the red
Tata while talking to reporters at the IETF 99 in a videoconference from Mumbai said that the overwhelming
response of over 125 lakh initial bookings for the Indica had come as a surprise It seems we touched the
national chord somewhere as people responded to the fact that this is the first Indian car said Tata Indica is not
the end of the road for Telco when it comes to passenger cars It is just the beginning as there are more to come
said Tata adding that the company was working on another mid-size car after Indica
Telco had to produce 60000 cars a year to break-even The group created two
organizations within Telco one dealing with commercial vehicles and the other with passenger cars The
company under took a major restructuring exercise whereby the passenger car and commercial vehicles divisions
would function as two separate business units Telco had a strategy to go for exports after addressing the initial
requirements of the domestic market
Awards and Recognition
In May 2000 Tata Engineering and Locomotive Company Ltd (Telco) won a national award for successful
indigenous technology used in the Indica car project The award titled National award for successful
commercialization of indigenous technology by an industrial concern for indigenous development and
commercialization of Tata Indica car was presented by the minister for human resource development science and
technology and ocean development
Dr Murli Manohar Joshi
37
In November 1999 Telco was awarded the Department of scientific and industrial research
national award for indigenous design of the Tata Indica It was the first company in India to implement stringent
emission norms well ahead of the mandate dates
Promotions
The Indica advertising made interest for the car go into overdrive The campaign revolved around the premise that
the Indica would not just meet peoples expectations it would exceed them Every advertisement has a story to
tell
Pre launch Campaign
The Indica campaign began in the right earnest in December 1998 It was advertised as the launch of a car that
will spell doom for the small cars It was directly aimed at Maruti 800 The ad line used in the first campaign was
ldquoCar makers will suddenly remember all the thing they forgot to give yourdquo This hinted that Indica would have
more features than any of the existing small cars Indica used the catch lines like ldquo More car per Carrdquo ldquoMore
dreams per carrdquo to suggest that Indica will be bigger in size to the existing small cars yet be in the small car
category It competes with the mid size cars on size and give them a run for their money with its cheaper price
tag
At the launch of the car TELCO claimed that the people would never have to suffer from a small car again and
that the n end of the year (1998) would be the end of the small cars
Launch Campaign
The launch campaign of Indica focussed on the many advantages that it offered over other cars in the same
segment It promised the customers more than the current offerings Its first advertisement carried the following
catch line ldquo50cc moped 100cc bike 800cc car Time you asked for morerdquo
38
It then concentrated its efforts on criticizing the negative aspects of Maruti 800 and highlighted how Indica has
removed those very defects and presented a very sophisticated and modern car to the Indian customer It even
pointed out that the shape of Maruti was very unconventional and that people would prefer the shape of Indica to
Maruti 800 The advertisement read ldquo Box shaped bubble shaped wedge shaped But then Gentlemen prefer
curvesrdquo
The launch campaign also focussed on the roomy interiors of Indica a feature not offered by Maruti at that point
of time Also the expertise of TATA in diesel engines and fuel efficiency of these were the highlight of the launch
campaign of Tata Indica
Post Launch Campaigns
While the Launch campaign focussed on the features of Indica the post launch advertisements focussed on the
superior after sales service and longer warranty periods offered by Indica
Telco was the first company to offer an 18-month warranty period on engine parts The most famous line used
during this campaign was ldquoWe could go on and on about service or give you the one word summary TATArdquo
While their main adversary was the Maruti 800 Telco felt that it could also tap the mid size segment using the
selling point of space given by Indica They carried a campaign which said ldquoForget small cars we even make big
cars feel smallrdquo
It then went on to highlight the fact that Indica was Euro II compliant even before it was legally binding upon car
manufacturers to do so It also highlighted the concrete wall safety test that Indica withstands and tried to
showcase the car as a safe and strong car
39
Chapter 6 COST REDUCTION TECHNIQUES
IN TATA MOTORSrsquoS INDICA
40
Chapter 6 Tata Indica - The Making Of The Small Car
with objective of minimizing costs
The research provides an understanding of the issues concerning the supply chain management system at
Telco in regard to its small car Indica It outlines how Telco built the supply chain for the car by leveraging its
existing competencies and how it transformed itself from an integrated truck manufacturer to an automobile
integrator and from a product-centric company to competence- centric company The case discusses various
components of the supply chain and emphasises how Telco orchestrated them with the objective of minimizing
costs
ldquoTelcorsquos 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 comerdquo
- Business India March 22 1999
In the early 1990s Telcorsquos Chairman Ratan Tata (Tata) was flirting with the idea of developing a small
car By mid-1994 a rudimentary design was in place In 1995 Telco announced that it planned to build a car
which would be priced close to the Maruti 800 shaped like the Zen and spacious as an Ambassador
Producing the new small car ndash Indica ndash represented a different kind of challenge for Telco Should Tata succeed he
would change the face of Telco As a truck-maker Telco was so integrated that it even made it own castings and
forgings As an automaker it would have to focus on the value chain that stretched between raw materials and after-sales
41
service as well as assembling the parts into the complete automobile
For its new venture Telco outsourced 80 of the components (1200 of its 1500-plus parts) from 200-odd vendors To
develop the Indica Telco had to combine the learnings from its predecessors with its own unique supply chain
management strategies to ensure a sustainable low-cost platform
By learning to build and manage a supply chain it would set the ground for leveraging the capabilities of the
automotive component-manufacturers who already operated in its target markets In other words Telco planned
to use its skills as an integrator--bringing together products and services from both upstream and downstream
operations and packaging them for the customer under a brand name in its new venture
Globally a car could be built in 48 months with an investment of US $ 3 billion (Rs 1275 billion) Indica was
built in 31 months on a budget of Rs 17 billion This seemed to have been possible by focussing on the supply
chain
Chapter 61 THE OUTSOURCING STRATEGY
For Telco outsourcing seemed to be one of the most difficult aspects of producing the Indica Unlike global
automobile majors Ford Motors or General Motors which had a global vendor-base that could be replicated on
a smaller scale in India Telco had to create a vendor-base from scratch Moreover it did not have the expertise
either to design a car or to build an engine for it
Against this background Telco had to take its primary lsquomake-or-buyrsquo decisions for the key inputs-design
engine and transmission Telco decided to shop globally for the best deals and use its own expertise to make
42
whatever modifications were needed
(Refer Table I for the components outsourced by Telco)
TABLE I
OUTSOURCING THE COMPONENTS
Components Supplier
5 door hatchback IDEA Italy
Engine Institut Francais du Petrol
France
Assembly Line Nissanrsquos Plant Australia
Presses Mercedes Benz
Pistons and Piston rings India Pistons
Electrical components and fuel injection
systems Lucas-TVS
Steering systems Rane TRW Steering Systems
Clutch facings and rear (drum) brake linings Sundaram Brake Linings (SBL)
Seating Systems Tata-Johnson Controls
Radiators Tata-Toyo
Rear view mirrors Tata-Ficosa
Front and rear bumper dash-board inside
trims Tata-Auto Plastics
Air conditioning kits Subros Ltd
Wind screens and windows Asahi Glass
Fuel lines Imperial Auto
Differential assemblies Sona Steering
43
Sheet metal items JBM Tools
Source Business Today March 22 1999 and December 7 1999
Telco turned to the Italian company IDEA for the product-design It bought the engine from the Institut
Francais du Petrol of France and applied its engineering skills to adapt the engine requirements The transmission
was developed in-house at its Engineering Research Centre (ERC) at Pune Of the Rs 25 billion it spent on
designing the Indica the major share went in buying design tools and training its engineers in new skills Telcorsquos
engineers traveled regularly to the sites of its technology suppliers to receive training before the actual delivery
of the machines
Telco also outsourced its assembly line from Nissanrsquos plant in Australia for just Rs 900 million Telco
transplanted it at its factory at Chikli near Pune which was newly set up for Indica A new assembly line of the
same proportions would have cost at least Rs 4 billion Again of the 3 presses for the Indica only 1 was new
acquired for Rs 900 million while the other 2 were bought second-hand from Mercedes-Benz and modified to
suit the Indica
Telcorsquos engineers and the ERC did the application engineering programming installation and commissioning to
save around 45 of the technology costs The tooling for the car too was supplied internally by Telcorsquos machine
tool division To manage the supply chain better Telco kept the number of suppliers for Indica to just 200 as
compared to about 1000 for trucks Most of the parts were supplied by Telcorsquos traditional suppliersmdash TVS Rane
Group and Tata Auto Component Systems (Taco) who were single source suppliers Pressed parts assemblies
and drive shafts were sourced from single vendors
44
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
In This type of Exploratory Research design involves Collection of Information from Secondary Data
In this Automobile Survey The whole study is Secondary data based oriented
a Secondary Data from Internet on Manufacturing Industries
b Journals on Cost reduction Techniques on manufacturing Industries
c Scholarly articles for brief about indian manufacturing industries
d Books on Operational management
e Review Articles on Supply Chain-Upstream and Down stream
f Study for Opeartion Research Techniques- Transportation Techniques
CHAPTER 24 Scope of the Study
Among the studys key findings are
Indian automobile and auto components industry is on a roll and there is an immense scope for management
for enhancing the supply chain of the sector India has become a favourable destination for foreign companies
to establish their facilities and form alliances with domestic companies Low cost of manufacturing
and conducive government support have been the major drivers for foreign companies investing in India
Indiarsquos large young population higher GDP growth and most importantly per capita passenger car penetration
is low at 85 car per thousand population which creates great opportunity for industry players to offer
an affordable four-wheeler alternative to the two-wheeler customers According to Planning Commission of India
Indian automobile industry is expected to grow at CAGR of 15 over the next five years The Indian economy is
12
now gaining momentum in the world of free trade and liberal movements of goods and services between
countries Therefore efficiency in supply will be critical for Indiarsquos automobile success
NEED FOR MATERIALS-SYSTEMS APPROACH
Improved materials and materials processing can and must play a large role in generating productive and effective
responses to the forces that will drive the automotive industry in the future However these forces often pull in
diverse directions when specific technological actions are considered For example aluminum alloys can be used
to reduce vehicle weight thereby reducing emissions and improving fuel economy but the added materials costs
currently offset these advantages for many applications As a result steel is still the major material of choice for
automobile construction today and will be difficult to supplant for the foreseeable future
Indiarsquos process-engineering potential can be utilised for redesigning of manufacturing
processes to make them more labour intensive and less capital intensive which will enable the MNCrsquos to reduce
their overall costs substantially For instance de-automating of the production processes which are applied in
Western countriesrsquo factories can reduce the overall manufacturing cost of some components by up to 20
In case of product engineering India has emerged as a leading destination in the world
Indiarsquos strength is in its design which helps in reducing costs For instance redesign of the Maruti Altorsquos steering
system has cut down its weight by 15 India with its skilled engineers can design a product very fast which in
turn reduces its development cost and lead times For example an Indian supplier took six months to design a
steering system for an automaker It took more than four years to develop similar system with suppliers in the
other low-cost countries Several automobile manufacturers have already set up their auto component facilities in
India
13
CHAPTER 25 Limitations
For Automobile Study Primary Data varies wrt Secondary Data on account of theoretical practices in field then
practical theories
With increasing disposable incomes and ever-growing burden on the public modes of transport the Indian
passenger car industry is heading for a bright future provided car manufacturers offer a world class cars that give
value for money use novel marketing concepts to entice potential buyers and offer good after-sales service
Demand for passenger cars in FY2002 is projected at approximately 970755 units while production is expected
to reach 1210000 units The year is likely to witness a spurt in exports due to excess supply and liberalization of
export policy by the government
Some of the future strategies that need to be addressed while entering in to Indian small car market include the
redesign of the vehicle to suit the Indian road conditions and to develop aggressive marketing strategy to counter
the cost advantage enjoyed by dominant players like Maruti due to high capacity utilization With growing
number of two wheeler owners opting for used cars vehicles with higher resale value and excellent service
network are likely to account for a major market share in the near future Moreover the introduction of Euro III
and Euro IV norms in the near future is likely to increase the scrapping rates of cars
Exports are likely to increase in the near future with the entry of international car giants like Daewoo Hyundai
Honda Siel GM and Ford that intend to use India as a manufacturing production base
14
Chapter 3 CRITICAL REVIEW OF
LITERATURE
15
CHAPTER 3 CRITICAL REVIEW OF LITERATURE
A just released customer research study titled Customers Say What Companies Dont Want to Hear throws a
bucket of ice water in the face of some core business management tenets mdash plus a number of keystone principles
of the marketing advertising and customer relationship management (CRM) industries
Greenberg adds Customers Say What Companies Dont Want To Hear proves a mission-critical strategic point
Businesses need to rethink their logic and develop new operating models based on customer centric behaviors and
valuations
Commenting on the findings Paul Greenberg author of the industry best-seller CRM at the Speed of Light
Customer Strategies for the 21st Century says Lee and Mangen have verified and amplified with hard data
the growing perception that the new breed of customer is here to stay and businesses need to react mdash or risk their
very existence
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 While a top manager should be the ideal customer he
should also be the greatest critic of his companys products If the CEO compromises or is only looking at the
margins then even if he is successful the companys success will be short lived
- Ratan Tata the Chairman Tata Group
16
Chapter 31 Automobile Market Overview
The domestic automobile market has been growing at 142 per cent CAGR over the past 4 years (2000-01 to
2004-05) while the auto components market has been growing at 192 per cent CAGR (2000-01 to 2003-04) The
industry (OEMs and suppliers together) contributed nearly 4 per cent to the countryrsquos GDP in 2003-04 The
automotive sector also offers significant employment opportunities It employs 045 million people directly and
around 10 million people indirectly
The industryrsquos capabilities in design engineering and manufacturing have been recognised the world over and
most automotive majors are looking to increasingly source auto components from India
India is emerging as one of the most attractive automotive markets in the world and is poised to become a key
sourcing base for auto components The table below captures the highlights of the sector in India that illustrates
its growing significanceSee Annexure A amp B
Indian Automobile Industry
Largest three wheeler market in the world
2nd largest two wheeler market in the world
4th largest passenger vehicle market in Asia
4th largest tractor market in the world
5th largest commercial vehicle market in the world
17
Chapter 32 Automobiles - Domestic Performance
The production and domestic sales of the automobiles in India have been growing strongly While production
increased from 48 million units in 2000-1 to 85 million units in 2004-05 (a CAGR of over 15 per cent) domestic
sales during the same period have gone up from 46 million to 79 million units (CAGR 142 per cent) A positive
trend in the domestic market is that the growth has not been driven by one or two segments but is consistent
across all key segments Two wheelers which constitute the majority of the industry volume have been growing
at a rate of 143 per cent three wheelers at a rate of 14 per cent and passenger vehicles at a rate of 113 per cent
Commercial vehicles have been growing at a higher rate of nearly 235 per cent although from a lower base
Since nearly all macro-economic indicators ndash GDP infrastructure population demographics interest rates etc ndash
are showing a favourable trend the domestic market for automobiles in India is expected to continue on its
growth trajectory
Chapter 33 Exports of automobiles from India
While the domestic sales of automobiles have been increasing at a significant rate exports have taken a quantum
leap in recent years The exports of automobiles from India have been growing at a CAGR of 39 per cent for the
past four years Exports growth has been spearheaded by the passenger vehicle segment which has grown at a
rate of 574 per cent
As a result the share of passenger vehicles in overall vehicle exports has increased from 18 per cent in 1998-99 to
26 per cent in 2004-05 Europe is the biggest importer of cars from the country while predominantly African
nations import buses and trucks The Association of South East Asian Nations (ASEAN) region is
the prime destination for Indian two wheelers
18
Chapter 34 REVIEW OF THESIS DONE
This is easy to understand because the per capita disposable income of the people has gone up remarkably Over
the last five years per capita personal disposable income has gone up by around 8 which has increased
purchasing capacity of the people in the country Other factors have also contributed to this high growth in Indian
automobile sector These include lowering age of first car users shorter replacement cycles rising duel income
families nw technology which is lowering cost of ownership low car penetration in the country and most
importantly growing steel production in the country In addition wide variety and easily available financing
options are also some of the major reasons for surge in demand for automobiles in India
Global automobile manufacturers are consistently streamlining their business process by outsourcing their non-
core activities to low-cost countries like IndiaGlobal automobile manufacturers are under tremendous pressures
to innovate their manufacturing process and at the same time to reduce costs In view of the present global
competitiveness they must not only develop new features to strengthen their customer requirements but also
follow the environmental and safety standards In addition the base price of a car is expected to remain same over
the next decade As a result companies are forced to source more components from low-cost countries like India
According to Mckinsey global outsourcing of automobile and auto components would reach US$375 billion by
2015 from US$65 billion in 2002 India has plenty of scope to garner this potential According to the management
consulting firm India has the potential to notch this opportunity and reach up to US$25 billion to emerge as
major sourcing destinations along with China Mexico and Thailand Besides low cost Indias auto components
industry has the major advantage of enormous skills in process product and capital engineeringmdashits excellent
manufacturing history and good education system
19
Human beings think our way is the best but at Toyota we are told we have to always change We believe there is
no perfect way so we continue to search The goal is to break the current condition through Kaizen
- Shoichiro Toyoda Chairman Toyota Motor Corporation in December 2000
When Kaizen is applied to the workplace it means continuous improvement for - managers and workers Thus
Kaizen involves everyone in an organization to make improvements without large capital investments It can be
seen as a culture of continuous sustained improvement focusing on eliminating waste in all systems and
processes The Kaizen strategy begins and ends with people With Kaizen an involved leadership guides people
continuously to improve their abilities to meet high quality expectations low cost and on-time delivery which in
turn helps the organization gain a competitive edge
The production divisions council which checked the plants objectives occasionally modifying them taking into
account the companys profit targets replaced the production allowance councils After approval these objectives
became the Kaizen norm of each plant in terms of production efficiency The method of determining the
production efficiency was altered to make it less constrained as the standard time was fixed by measuring the time
really required for workers operations whereas earlier standard time was fixed on the basis of the best standard
time marked in the past
20
Chapter 4 Industry Profile
21
CHAPTER 4 Industry Profile
The Trans-nationals were also serious about developing vendors in India India is
bound to become an important destination for the global auto industry It took the financial turmoil in South East
Asia and the slowdown in the Chinese auto market to reinforce the targeting to Indian Market The new interest in
the small car segment also reflects certain amount of bullishness on the part of auto manufacturers about India
Despite projected over capacities--and current losses carmakers continued to queue
up their investments for small car segment To day there are 10 global auto majorsmdashincluding the $13-billion
Suzuki Motor (Japan) the $65-billion Daewoo (South Korea) the $147-billion Ford (US) the $47-billion Fiat
(Italy) and the $168-billion General Motors (US) operating in Indian Market
Chapter 41 The Pre 1997 Automobile Market
As late as 1997 the auto market in India was clearly segmented At the entry level
were MULs 800-cc car--priced between Rs 210-lakh and Rs 245 lakh--and the Omni at Rs 175 lakh At the
next level were the 993-cc Zen--priced at Rs 370 lakh--and the 999-cc Fiat Uno (Rs 362 lakh) Then came the
1300-cc Esteem models--priced between Rs 469 lakh and Rs 595 lakh--the 1498-cc Cielo (Rs 620 lakh) and
the 1598-cc Opel Astra (Rs 752 lakh) followed by premium cars like Mercedes-Benzs E-220 (Rs 22 lakh)
Changing Lanes
Two events have upset the equations in the price-segmented car market Daewoo has
Changed the lanes with the Cielo which is now priced at Rs 490 lakh and competes with the Zens top-end
model (Rs 440 lakh) and the Esteems lower-end version (Rs 469 lakh) Ceilo has created a new value segment
where the price is not proportionate to the size Daewoos strategic response has very clearly redefined
differentiation from price or size to value
22
Hyundai Motors India a subsidiary of the $27-billion Hyundai of South Korea launched
its 999-cc Santro at the Auto Expo 1998 in Delhi The model comes in five variants with the non-air-
conditioned manual transmission model priced at Rs 280 lakh and the semiautomatic air-conditioned GLS
model priced between Rs 315 lakh and Rs 4 lakh ClearlyHyundais strategy is aimed at taking on the market
leader Maruti Udyog Limited But by pricing the deluxe model at Rs 4 lakh it is also bridging the gap between
the small and the middle car segments At present Marutirsquos Esteem LX is priced Rs 70000 more than the
Santro GLS while the Cielo is priced Rs 90000 more
The further entry of new players will only blur the segments New entrants will be
involved in price war to find a foothold in the Indian market Few of the examples include
TELCOs positioning of its 1400-cc Indica car--launched in November 1998 and priced close to Marutirsquos 800-cc
model as a small carand Honda sneaking its 1300-cc City into the segment vacated by the Cielo although it is
an accepted fact that pricing or positioning cannot be done in isolation In a crowded market that must depend on
the available strategic opportunities
By creating new segments companies can broaden their market base increase
capacity utilization levels pre-empt competitors market entry moves and importantly lower costs While Maruti
did that by launching three versions of the Esteem TELCO accomplished it by using a common platform for the
Sumo the Estate and the Sierra models Hyundai is also planning to come to the market with five variants in near
future At high volumes costs can be lowered by more than 20 per cent across variants due to experience curve
effect
Configuring the sticker price for a car in the market today is no more a functional
decision It has become a strategic decision as it identifies the key segmentrsquos response
23
elasticity to the market offer The two key inhibiting factors for the poor response to the auto war fare in Indian
Car Market are basically the low per capita income at $350 (Rs 14000 at current prices) and the high
manufacturing costs A large part of the population expected to graduate from two wheelers to four wheelers has
not responded as they were supposed to during this period of time The domestic auto giant Maruti Udyog
limited still forces the new players to benchmark themselves against its products which roll out from a
depreciated yet high-volume plant It enjoys the fast mover as well as the cost advantage with the higher capacity
utilisation that helps him to cut costs across as more cars you make the cheaper they get
With the worldrsquos second largest and fastest-growing population there is no doubt that Indiarsquos potential in both
economic and population terms and the effect it will have on the auto industry in the next years During the last
two years export from this sector has grown significantly owing mainly to the export of cars and two-three-
wheelers
The industry is characterized by a very high percentage (75) of production in the 23 wheeler sector India ranks
as the largest manufacturer of motorcycles and second largest in manufacturing of scooters in the world India
today is also the second largest manufacturer of tractors as well The industry has intense forward and backward
integration
The Indian automotive industry had experienced an extraordinary growth due to the improvement in the living
standards of the middle class and an increase in their disposable incomes Moreover the liberalization steps such
as relaxation of the foreign exchange and equity regulations reduction of tariffs on imports and refining the
banking policies initiated by the Government of India have played an equally important role in bringing the
Indian Automotive industry to great heights
It is estimated that the sale of passenger cars have tripled compared to their sale in the last five years Thus the
sale of cars has reached a figure of 1 million users and is expected to increase further Its also to be noted that the
24
demand for luxurious models SUVs and mini-cars for family owners have shot up largely due to increase in the
consumers buying capacity
The Indian automotive market
India country fact file 2005
Population 1 080 264388
Per Capita GDP (PPP) $3400
GDP Growth Rate 71
Total automotive sales 2005 1 439604 (889333)
Total automotive production 2005 1 643460 (1 000567)
Market growth 2005 vs 2004 70 (64)
Best sold model PC segment 2004 Maruti Alto (168)
Best sold model LCV segment 2004 Maruti Omni (213)
(passenger cars) (market share in segment)
Source httpwwwsegmentycomIndiahtm
Chapter 42 The Protected Indian Domestic Automobile Sector
MUL which set up shop in 1984 had 10 long years of relative protection to emerge as a formidable competitor
with high volume and a strong brand image in the mind of Indian customers When the industry was deregulated
in 1993 the cost barrier had become so high that new companies could not dare to look at the small car segment
25
Instead they settled for the mid-size segment where both volumes and margins were expected to be high
However a shakeout in the Indian mid-size car segment the slowdown in international auto sales pushed
transnational auto majors into India which have now turned the tide against MULThe present generation small
cars launched recently are more contemporary in terms of both design and technology while Marutis small-car
technology is at least a decade old
Keeping the future growth potential of Indian market in mind the auto majors are prepared to bear losses for the
next 10 years This will help them to gain a good market share the long run and provide breathing space to
counter the strategic moves of the leader Hence the narrowing price differential between the old and the new
small cars is the first call of the auto majors against Maruti in Indian Market If Maruti has to try and match the
features of new generation small cars it would mean additional costs On the contrary if Maruti decides to
hold its price line and add new features it could translate into losses or at least low profits But MUL can still
bank on at least two Suzuki models the proposed 657-cc Cervo C and the current 996-cc Wagon R to battle its
rivals in the future
Chapter 43 The Advent of the Auto Majors
Besides bracing up for losses in the initial years auto majors like Hyundai and Daewoo are banking on exports
too At the moment export may look unattractive because of the South Asian meltdown but in the long run low
production costs and component-manufacturing skills will make India- made cars competitive at global market
place Hence they are looking India as a production base to cater to the growing Asian market by way of
outsourcing from Indian manufacturing base However many a hurdles they have to cross on the journey to
profitability
26
The investments necessary for a large plant are simply huge Daewoo has so far sunk Rs 2700 crore in a
120-lakh-unit-a-year plant Unlike China which has restricted the number of companies India has followed an
open door policy for car manufacturers which has resulted in emergence of fragmented markets with distributed
capacity
An Original Equipment Manufacturer (OEM) needs a minimum economic size of 150 lakh cars a year to attract
vendor interest Daewoo was able to slash the Cielos price as it is cheaper to import components because of the
devaluation of the South Asian currencies The auto majors are lobbying with the government to ease the strict
indigenisation norms in the new automobile policy so that they can import the components from other countries
This will help them to cut the prices and to go head on the market leader particularly in a price responsive market
like that of small car segment
The other argument is that with the given import duty of 103 per cent on Completely Knocked-Down Kits
(CKDs) which is the same as that on Completely Built-up Units (CBUs) and 68 per cent on components the
imports will become costlier and compel companies to localize their manufacture The exposure to currency
fluctuations which crippled the four Japanese light commercial vehicle projects in the late 1980s is also minimal
when a company localizes component manufacture
Besides lean manufacturing techniques like Just-In-Time (JIT) are possible only when the supplier is located
close to the manufacturing unit If Maruti is a success story it is only because it indigenised 85 per cent of its
components within five years of going on-stream
Then theres the question of servicing the replacement market for spares Customers typically expect
components to be available locally and at competitive prices Imports cannot guarantee that but it is a
27
tremendous job to localize components at the right quality and price given the supplier problems in prevalent in
India
An Original Equipment Manufacturerrsquos competitive advantage lies in its marketing skills Having achieved price
and technology parity it can easily woo the consumer with attractive financing schemes and superior after-sales
service Nudged by the competition most auto players have a clutch of schemes to offer Daewoo Motors India
provides interestfree car finance Ford Motor and General Motors have slashed interest rates MULs joint
venture finance company Maruti Countrywide is offering loans at 1350 per cent when the prevailing lending
rate is 17 per cent and above
Chapter 44 The After Sales Service Scenario
After sales service for cars is as critical as showroom deals Maruti services its 2 million customers through an
army of 174 dealers spread across the country It will be impossible for a company to duplicate such
infrastructure particularly with investments in a metro-based showroom going up to Rs 4 crore Margins in
retailing are moving from actual sales to after sales service
The problem of price war is evident with Auto majors as much as with dealers In a bid to woo the customers
dealers particularly in non-prime locations are cutting their margins It will not be surprising if single-brand
dealers eventually turn into multi-brand sellers in future
Doing so will benefit all the three constituents in the marketing chain the OEM the dealer and the buyer The
carmaker can expand his reach without expensive investment the dealer can increase his revenue and the
customer gets a variety of models and brands under one roof in future
The local partner will be the loser in this fierce battle Without the means to make either matching equity or
technological investment the Indian collaborator will be driven off the road
28
It has already happened to the Rs 166-crore DCM which tied up with Daewoo Motors and can happen to both
the Rs 1258-crore Hindustan Motors (Partner General Motors) and the Rs 360657 crore Mahindra amp Mahindra
(Partner Ford Motor)
So they are reconciled to adopting a minority role or becoming auto component vendors This list includes
Siddharth Shrirams Rs 430-crore Siel (Partner Honda) the Kirloskars (Partner Toyota) and the Munjals of the
Rs 2000-crore Hero Group (Partner BMW) And the evidence is compelling eg Hindusthan Motors has a
passive role in its joint venture with General Motors although the Opel Astra is manufactured at HMs Halol plant
in Gujarat The same can be forecasted about Mahindra and Mahindrarsquos joint venture with Ford Motor What can
prolong the life of the joint venture is distribution muscle as it will take at least five years for a transnational auto
major to build a strong distribution channel in this country
By all accounts the auto industry is headed for a glut With an estimated demand for cars to touch 9 lakhs in
2001-2002 the installed capacity will rise to 16 lakhs So the current growth rate in Indian market is not
sustainable There will be at least two years of stagnant or declining demand before the resumption of the growth
trendThere is a projected demand of 1-lakh cars in the mid-segment alone by 2001-2002 And the car numbers
will add up to around 6 lakh a year That will engender a shakeout which is already afoot in the other Asian
markets For instance poor off -take and a consequent build-up of car inventories has led to a fierce price-war in
China
Chapter 45 Market Potential of Indian Automobile Segment
The demand for the small car will continue to drive growth for the next five years Of the total sales of Maruti in
2000-2001around 85 per cent were small cars The Esteems sales dropped in the same period where as the small
cars drove MULs sales So demand for small cars will leap only if certain conditions are fulfilled
29
Rise in the Income Levels In the US auto demand rises by 4 per cent for every 1 per cent increase in the real
Gross Domestic Product but this is irrelevant for India as only the top 150 per cent of the population
can afford a car The demand can shoot up if the income levels of the top 5 per cent continue to rise in future
Level Of Motorization It is stagnant at 170 cars per 1000 people for decades However in the post-liberalization
period the motorization level has leaped to 370 cars per 1000 Although it is still lower than the levels in the
developed markets motorization is bound to rise further in the coming years
Chapter 451 Vehicle Prices
Falling imports and excise duties coupled with competition will continue to boost demand and
the prices are likely to fall further at least in the short run
Chapter 452 Consumer Finance
Over 60 per cent of customers opt for consumer finance That figure could go up if interest
rates continue to fall
Chapter 453 Infrastructure
Traffic congestion and bad roads could deter potential buyers from going for small cars
particularly in small cities of India The future is not very heartening in this aspect
Chapter 454 Product Availability
As manufacturers shift their attention to the small car more and more people will be able to
afford it and demand will only rise in the future period of time
30
Chapter 46 The Future-Indian Automobile
There is a sharp contrast in the buying behavior of Indian Consumer compared to their western counter parts yet
there is no doubt that Indian car market is going to increasingly resemble the latter In the West the industry is
likely to be dominated by three or four major players With a likely demand of 11 lakh cars by 2006 there will be
a few niche players like BMW Mercedes-Benz and Audi with luxury cars to offer Unless car manufacturers
have a large range of vehicle to offer they will be unable to subsidize their costlier models
The market will consolidate to few segments The carmaker has to make diverse models based on diverse and
flexible platforms Products like the stripped-down economy car the sports utility vehicle or the van should be
built on the same platform For the price-sensitive customers there can be a no-frills version a loaded version for
the middle customer and luxury car manufacturers can target the high-end customers
The fortunes of the autoobile industry will continue to hinge on the large price sensitive customers who will
graduate to the higher end of the market over a period of time
Until then the small car will continue to drive demand and most of the car-manufacturers are
gearing up for this eventuality
31
Chapter 5 Company Profile
ldquoTata Motorsrdquo
32
CHAPTER 5 Company ProfileTata Motors
Tata Motors previously known as Tata Engineering and Locomotive Co Ltd (TELCO) is one of the largest
companies in the Tata Group and one of Indias largest business houses Tata Motors is Indias leading
commercial vehicle manufacturer and the third largest passenger car manufacturer The company is the sixth
largest truck manufacturer in the world Tata Motors recently received the Balanced Scorecard Collaborative Hall
of Fame Award for having achieved a significant turnaround of its overall performance A comprehensive quality
improvement and cost cutting initiative in September 2000 has played an important role in the companys
turnaround from a loss of Rs 500 crores in the year ended March 2001 to a profit of Rs 28 crores in the first
quarter of 2002-2003
Tata Engineering and Locomotive Company (TELCO)
Chapter 51 History amp Evolution
Tata Engineering and Locomotive Company Ltd popularly known as Telco was incorporated in 1945 to
manufacture steam locomotives In 1954 the company diversified into automobile manufacturing through a
collaboration with Daimler-Benz for the manufacture of commercial vehicles By the time the collaboration ended
in 1969 Telco had not only become an independent producer of medium commercial vehicles (MCVs) with
negligible import contentbut had developed the capability of designing and developing such vehicles The
Company progressively widened its product range to cover heavy commercial vehicles (HCVs) and light
commercial vehicles (LCVs) implementing one expansion program after another
To sustain the unrelenting pace of its growth Telco added machining press and assembly
33
capacities set up its own forge and foundries and virtually created the countryrsquos automobile ancillary industry
The Company even developed facilities for designing and manufacturing state-of-the-art machine tools material
handling equipment dies and fixtures To accommodate the Companyrsquos growing activity base a large modern
complex was set up at Pune in western India and a new plant became operational at Lucknow in the north of the
country
To provide a business focus for the Companyrsquos main activity areas Telco has created twobusiness unitsrsquo -
Automobiles and Construction Equipment ndash both of which have notched up record-breaking results
Telco today has a domestic market share of 68 in the MCVHCV segment 64 in the LCV segment and 32
in the multi-utility segment Apart from commercial vehicles which range from 1 ton to 35 tons GVW Telcorsquos
automobile products also include passenger vehicles and an extraordinarily popular multi-utility vehicle All these
products have been developed inhouse by the Companyrsquos own RampD Center This Center is equipped with the
latest computeraided design hardware and software enabling the company to respond quickly to changing
customer needs both in India and abroad
Telco has been exporting its products since 1969 and currently exports about a tenth of its
output Export markets include the Middle East Africa and Southeast Asia as well as
developed countries in Europe like France UK and Spain It is intended that exports should account for 20 of
the automobiles sold by the Company
Telcorsquos second line of business Construction Equipment has also grown rapidly and the
Company currently commands a 61 share in the excavator market and 90 in the crawler cranes market in
India The hydraulically operated construction equipment made by the company is in collaboration with Hitachi
34
Construction Machinery Limited of Japan There are ambitious plans for widening the range of excavators made
by the company and for adding new lines of construction equipment A recent addition to the excavator range is
Backhoe Loader
Telco is one of Indias largest private sector companies With a turnover of Rs 6637 billion it is the countrys
leading commercial vehicle manufacturer and the worldrsquos sixth largest automobile company
The widely successful Tata Indica which is Euro 1 and 2 compliant is the countryrsquos first
indigenously designed developed and manufactured passenger car The company also
makes several other passengers vehicles including the Safari the Sumo the Sierra the Tata Estate and the
Tatamobile pick-up
The companyrsquos products have received wide acceptance not only in India but also in markets in the Middle East
Asia Africa and Europe
Chapter 52 Areas of business
The company manufactures medium heavy and light commercial vehicles multi-utility
vehicles and passenger cars It also makes general and special purpose machines for
automotive applications at its machine tool division These include NCCNC horizontal and inline machining
centers flexible manufacturing systems CNC cylindrical grinding machines and robots for welding cutting
painting and other applications
In 1999 the companyrsquos revenues from its four manufacturing plants at three locations in India were Rs 6637
billion ($15735 million) In 1998 they were Rs 7026 billion ($1893 million) (The average exchange rate in
1999 was Rs 4218 to one US dollar)
35
In the year ended 31 March 2000 the companyrsquos total exports were worth about Rs 50553 crore against about
Rs 60078 crore in the previous year
Locations
The companyrsquos manufacturing plants in India are at Jamshedpur in Bihar Pimpri and
Chinchwad near Pune in Maharashtra and Lucknow in Uttar Pradesh A fifth manufacturing facility is being set
up at Dharwad in Karnataka
Collaborations
The Company has technical tie-ups with
bull The Institute of Development in Automotive Engineering SPA Italy for assistance in
small car body design and styling
bull Nachi Fujikoshi Corporation Japan for robots for welding painting and other
automotive applications
bull Le Moteur Moderne France for the development of diesel and petrol engines for
passenger cars and
bull Robert Bausch GmbH Germany for application work on the engine management
system for 4 PL petrol engines
36
Chapter 53 Tata Motors ndashSuccessful Car Indica
TELCO launched Indica when the TATA group was in red Telco chairman Ratan Tata said that the 1400 cc car
Indica would drive the company out of the red
Tata while talking to reporters at the IETF 99 in a videoconference from Mumbai said that the overwhelming
response of over 125 lakh initial bookings for the Indica had come as a surprise It seems we touched the
national chord somewhere as people responded to the fact that this is the first Indian car said Tata Indica is not
the end of the road for Telco when it comes to passenger cars It is just the beginning as there are more to come
said Tata adding that the company was working on another mid-size car after Indica
Telco had to produce 60000 cars a year to break-even The group created two
organizations within Telco one dealing with commercial vehicles and the other with passenger cars The
company under took a major restructuring exercise whereby the passenger car and commercial vehicles divisions
would function as two separate business units Telco had a strategy to go for exports after addressing the initial
requirements of the domestic market
Awards and Recognition
In May 2000 Tata Engineering and Locomotive Company Ltd (Telco) won a national award for successful
indigenous technology used in the Indica car project The award titled National award for successful
commercialization of indigenous technology by an industrial concern for indigenous development and
commercialization of Tata Indica car was presented by the minister for human resource development science and
technology and ocean development
Dr Murli Manohar Joshi
37
In November 1999 Telco was awarded the Department of scientific and industrial research
national award for indigenous design of the Tata Indica It was the first company in India to implement stringent
emission norms well ahead of the mandate dates
Promotions
The Indica advertising made interest for the car go into overdrive The campaign revolved around the premise that
the Indica would not just meet peoples expectations it would exceed them Every advertisement has a story to
tell
Pre launch Campaign
The Indica campaign began in the right earnest in December 1998 It was advertised as the launch of a car that
will spell doom for the small cars It was directly aimed at Maruti 800 The ad line used in the first campaign was
ldquoCar makers will suddenly remember all the thing they forgot to give yourdquo This hinted that Indica would have
more features than any of the existing small cars Indica used the catch lines like ldquo More car per Carrdquo ldquoMore
dreams per carrdquo to suggest that Indica will be bigger in size to the existing small cars yet be in the small car
category It competes with the mid size cars on size and give them a run for their money with its cheaper price
tag
At the launch of the car TELCO claimed that the people would never have to suffer from a small car again and
that the n end of the year (1998) would be the end of the small cars
Launch Campaign
The launch campaign of Indica focussed on the many advantages that it offered over other cars in the same
segment It promised the customers more than the current offerings Its first advertisement carried the following
catch line ldquo50cc moped 100cc bike 800cc car Time you asked for morerdquo
38
It then concentrated its efforts on criticizing the negative aspects of Maruti 800 and highlighted how Indica has
removed those very defects and presented a very sophisticated and modern car to the Indian customer It even
pointed out that the shape of Maruti was very unconventional and that people would prefer the shape of Indica to
Maruti 800 The advertisement read ldquo Box shaped bubble shaped wedge shaped But then Gentlemen prefer
curvesrdquo
The launch campaign also focussed on the roomy interiors of Indica a feature not offered by Maruti at that point
of time Also the expertise of TATA in diesel engines and fuel efficiency of these were the highlight of the launch
campaign of Tata Indica
Post Launch Campaigns
While the Launch campaign focussed on the features of Indica the post launch advertisements focussed on the
superior after sales service and longer warranty periods offered by Indica
Telco was the first company to offer an 18-month warranty period on engine parts The most famous line used
during this campaign was ldquoWe could go on and on about service or give you the one word summary TATArdquo
While their main adversary was the Maruti 800 Telco felt that it could also tap the mid size segment using the
selling point of space given by Indica They carried a campaign which said ldquoForget small cars we even make big
cars feel smallrdquo
It then went on to highlight the fact that Indica was Euro II compliant even before it was legally binding upon car
manufacturers to do so It also highlighted the concrete wall safety test that Indica withstands and tried to
showcase the car as a safe and strong car
39
Chapter 6 COST REDUCTION TECHNIQUES
IN TATA MOTORSrsquoS INDICA
40
Chapter 6 Tata Indica - The Making Of The Small Car
with objective of minimizing costs
The research provides an understanding of the issues concerning the supply chain management system at
Telco in regard to its small car Indica It outlines how Telco built the supply chain for the car by leveraging its
existing competencies and how it transformed itself from an integrated truck manufacturer to an automobile
integrator and from a product-centric company to competence- centric company The case discusses various
components of the supply chain and emphasises how Telco orchestrated them with the objective of minimizing
costs
ldquoTelcorsquos 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 comerdquo
- Business India March 22 1999
In the early 1990s Telcorsquos Chairman Ratan Tata (Tata) was flirting with the idea of developing a small
car By mid-1994 a rudimentary design was in place In 1995 Telco announced that it planned to build a car
which would be priced close to the Maruti 800 shaped like the Zen and spacious as an Ambassador
Producing the new small car ndash Indica ndash represented a different kind of challenge for Telco Should Tata succeed he
would change the face of Telco As a truck-maker Telco was so integrated that it even made it own castings and
forgings As an automaker it would have to focus on the value chain that stretched between raw materials and after-sales
41
service as well as assembling the parts into the complete automobile
For its new venture Telco outsourced 80 of the components (1200 of its 1500-plus parts) from 200-odd vendors To
develop the Indica Telco had to combine the learnings from its predecessors with its own unique supply chain
management strategies to ensure a sustainable low-cost platform
By learning to build and manage a supply chain it would set the ground for leveraging the capabilities of the
automotive component-manufacturers who already operated in its target markets In other words Telco planned
to use its skills as an integrator--bringing together products and services from both upstream and downstream
operations and packaging them for the customer under a brand name in its new venture
Globally a car could be built in 48 months with an investment of US $ 3 billion (Rs 1275 billion) Indica was
built in 31 months on a budget of Rs 17 billion This seemed to have been possible by focussing on the supply
chain
Chapter 61 THE OUTSOURCING STRATEGY
For Telco outsourcing seemed to be one of the most difficult aspects of producing the Indica Unlike global
automobile majors Ford Motors or General Motors which had a global vendor-base that could be replicated on
a smaller scale in India Telco had to create a vendor-base from scratch Moreover it did not have the expertise
either to design a car or to build an engine for it
Against this background Telco had to take its primary lsquomake-or-buyrsquo decisions for the key inputs-design
engine and transmission Telco decided to shop globally for the best deals and use its own expertise to make
42
whatever modifications were needed
(Refer Table I for the components outsourced by Telco)
TABLE I
OUTSOURCING THE COMPONENTS
Components Supplier
5 door hatchback IDEA Italy
Engine Institut Francais du Petrol
France
Assembly Line Nissanrsquos Plant Australia
Presses Mercedes Benz
Pistons and Piston rings India Pistons
Electrical components and fuel injection
systems Lucas-TVS
Steering systems Rane TRW Steering Systems
Clutch facings and rear (drum) brake linings Sundaram Brake Linings (SBL)
Seating Systems Tata-Johnson Controls
Radiators Tata-Toyo
Rear view mirrors Tata-Ficosa
Front and rear bumper dash-board inside
trims Tata-Auto Plastics
Air conditioning kits Subros Ltd
Wind screens and windows Asahi Glass
Fuel lines Imperial Auto
Differential assemblies Sona Steering
43
Sheet metal items JBM Tools
Source Business Today March 22 1999 and December 7 1999
Telco turned to the Italian company IDEA for the product-design It bought the engine from the Institut
Francais du Petrol of France and applied its engineering skills to adapt the engine requirements The transmission
was developed in-house at its Engineering Research Centre (ERC) at Pune Of the Rs 25 billion it spent on
designing the Indica the major share went in buying design tools and training its engineers in new skills Telcorsquos
engineers traveled regularly to the sites of its technology suppliers to receive training before the actual delivery
of the machines
Telco also outsourced its assembly line from Nissanrsquos plant in Australia for just Rs 900 million Telco
transplanted it at its factory at Chikli near Pune which was newly set up for Indica A new assembly line of the
same proportions would have cost at least Rs 4 billion Again of the 3 presses for the Indica only 1 was new
acquired for Rs 900 million while the other 2 were bought second-hand from Mercedes-Benz and modified to
suit the Indica
Telcorsquos engineers and the ERC did the application engineering programming installation and commissioning to
save around 45 of the technology costs The tooling for the car too was supplied internally by Telcorsquos machine
tool division To manage the supply chain better Telco kept the number of suppliers for Indica to just 200 as
compared to about 1000 for trucks Most of the parts were supplied by Telcorsquos traditional suppliersmdash TVS Rane
Group and Tata Auto Component Systems (Taco) who were single source suppliers Pressed parts assemblies
and drive shafts were sourced from single vendors
44
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
now gaining momentum in the world of free trade and liberal movements of goods and services between
countries Therefore efficiency in supply will be critical for Indiarsquos automobile success
NEED FOR MATERIALS-SYSTEMS APPROACH
Improved materials and materials processing can and must play a large role in generating productive and effective
responses to the forces that will drive the automotive industry in the future However these forces often pull in
diverse directions when specific technological actions are considered For example aluminum alloys can be used
to reduce vehicle weight thereby reducing emissions and improving fuel economy but the added materials costs
currently offset these advantages for many applications As a result steel is still the major material of choice for
automobile construction today and will be difficult to supplant for the foreseeable future
Indiarsquos process-engineering potential can be utilised for redesigning of manufacturing
processes to make them more labour intensive and less capital intensive which will enable the MNCrsquos to reduce
their overall costs substantially For instance de-automating of the production processes which are applied in
Western countriesrsquo factories can reduce the overall manufacturing cost of some components by up to 20
In case of product engineering India has emerged as a leading destination in the world
Indiarsquos strength is in its design which helps in reducing costs For instance redesign of the Maruti Altorsquos steering
system has cut down its weight by 15 India with its skilled engineers can design a product very fast which in
turn reduces its development cost and lead times For example an Indian supplier took six months to design a
steering system for an automaker It took more than four years to develop similar system with suppliers in the
other low-cost countries Several automobile manufacturers have already set up their auto component facilities in
India
13
CHAPTER 25 Limitations
For Automobile Study Primary Data varies wrt Secondary Data on account of theoretical practices in field then
practical theories
With increasing disposable incomes and ever-growing burden on the public modes of transport the Indian
passenger car industry is heading for a bright future provided car manufacturers offer a world class cars that give
value for money use novel marketing concepts to entice potential buyers and offer good after-sales service
Demand for passenger cars in FY2002 is projected at approximately 970755 units while production is expected
to reach 1210000 units The year is likely to witness a spurt in exports due to excess supply and liberalization of
export policy by the government
Some of the future strategies that need to be addressed while entering in to Indian small car market include the
redesign of the vehicle to suit the Indian road conditions and to develop aggressive marketing strategy to counter
the cost advantage enjoyed by dominant players like Maruti due to high capacity utilization With growing
number of two wheeler owners opting for used cars vehicles with higher resale value and excellent service
network are likely to account for a major market share in the near future Moreover the introduction of Euro III
and Euro IV norms in the near future is likely to increase the scrapping rates of cars
Exports are likely to increase in the near future with the entry of international car giants like Daewoo Hyundai
Honda Siel GM and Ford that intend to use India as a manufacturing production base
14
Chapter 3 CRITICAL REVIEW OF
LITERATURE
15
CHAPTER 3 CRITICAL REVIEW OF LITERATURE
A just released customer research study titled Customers Say What Companies Dont Want to Hear throws a
bucket of ice water in the face of some core business management tenets mdash plus a number of keystone principles
of the marketing advertising and customer relationship management (CRM) industries
Greenberg adds Customers Say What Companies Dont Want To Hear proves a mission-critical strategic point
Businesses need to rethink their logic and develop new operating models based on customer centric behaviors and
valuations
Commenting on the findings Paul Greenberg author of the industry best-seller CRM at the Speed of Light
Customer Strategies for the 21st Century says Lee and Mangen have verified and amplified with hard data
the growing perception that the new breed of customer is here to stay and businesses need to react mdash or risk their
very existence
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 While a top manager should be the ideal customer he
should also be the greatest critic of his companys products If the CEO compromises or is only looking at the
margins then even if he is successful the companys success will be short lived
- Ratan Tata the Chairman Tata Group
16
Chapter 31 Automobile Market Overview
The domestic automobile market has been growing at 142 per cent CAGR over the past 4 years (2000-01 to
2004-05) while the auto components market has been growing at 192 per cent CAGR (2000-01 to 2003-04) The
industry (OEMs and suppliers together) contributed nearly 4 per cent to the countryrsquos GDP in 2003-04 The
automotive sector also offers significant employment opportunities It employs 045 million people directly and
around 10 million people indirectly
The industryrsquos capabilities in design engineering and manufacturing have been recognised the world over and
most automotive majors are looking to increasingly source auto components from India
India is emerging as one of the most attractive automotive markets in the world and is poised to become a key
sourcing base for auto components The table below captures the highlights of the sector in India that illustrates
its growing significanceSee Annexure A amp B
Indian Automobile Industry
Largest three wheeler market in the world
2nd largest two wheeler market in the world
4th largest passenger vehicle market in Asia
4th largest tractor market in the world
5th largest commercial vehicle market in the world
17
Chapter 32 Automobiles - Domestic Performance
The production and domestic sales of the automobiles in India have been growing strongly While production
increased from 48 million units in 2000-1 to 85 million units in 2004-05 (a CAGR of over 15 per cent) domestic
sales during the same period have gone up from 46 million to 79 million units (CAGR 142 per cent) A positive
trend in the domestic market is that the growth has not been driven by one or two segments but is consistent
across all key segments Two wheelers which constitute the majority of the industry volume have been growing
at a rate of 143 per cent three wheelers at a rate of 14 per cent and passenger vehicles at a rate of 113 per cent
Commercial vehicles have been growing at a higher rate of nearly 235 per cent although from a lower base
Since nearly all macro-economic indicators ndash GDP infrastructure population demographics interest rates etc ndash
are showing a favourable trend the domestic market for automobiles in India is expected to continue on its
growth trajectory
Chapter 33 Exports of automobiles from India
While the domestic sales of automobiles have been increasing at a significant rate exports have taken a quantum
leap in recent years The exports of automobiles from India have been growing at a CAGR of 39 per cent for the
past four years Exports growth has been spearheaded by the passenger vehicle segment which has grown at a
rate of 574 per cent
As a result the share of passenger vehicles in overall vehicle exports has increased from 18 per cent in 1998-99 to
26 per cent in 2004-05 Europe is the biggest importer of cars from the country while predominantly African
nations import buses and trucks The Association of South East Asian Nations (ASEAN) region is
the prime destination for Indian two wheelers
18
Chapter 34 REVIEW OF THESIS DONE
This is easy to understand because the per capita disposable income of the people has gone up remarkably Over
the last five years per capita personal disposable income has gone up by around 8 which has increased
purchasing capacity of the people in the country Other factors have also contributed to this high growth in Indian
automobile sector These include lowering age of first car users shorter replacement cycles rising duel income
families nw technology which is lowering cost of ownership low car penetration in the country and most
importantly growing steel production in the country In addition wide variety and easily available financing
options are also some of the major reasons for surge in demand for automobiles in India
Global automobile manufacturers are consistently streamlining their business process by outsourcing their non-
core activities to low-cost countries like IndiaGlobal automobile manufacturers are under tremendous pressures
to innovate their manufacturing process and at the same time to reduce costs In view of the present global
competitiveness they must not only develop new features to strengthen their customer requirements but also
follow the environmental and safety standards In addition the base price of a car is expected to remain same over
the next decade As a result companies are forced to source more components from low-cost countries like India
According to Mckinsey global outsourcing of automobile and auto components would reach US$375 billion by
2015 from US$65 billion in 2002 India has plenty of scope to garner this potential According to the management
consulting firm India has the potential to notch this opportunity and reach up to US$25 billion to emerge as
major sourcing destinations along with China Mexico and Thailand Besides low cost Indias auto components
industry has the major advantage of enormous skills in process product and capital engineeringmdashits excellent
manufacturing history and good education system
19
Human beings think our way is the best but at Toyota we are told we have to always change We believe there is
no perfect way so we continue to search The goal is to break the current condition through Kaizen
- Shoichiro Toyoda Chairman Toyota Motor Corporation in December 2000
When Kaizen is applied to the workplace it means continuous improvement for - managers and workers Thus
Kaizen involves everyone in an organization to make improvements without large capital investments It can be
seen as a culture of continuous sustained improvement focusing on eliminating waste in all systems and
processes The Kaizen strategy begins and ends with people With Kaizen an involved leadership guides people
continuously to improve their abilities to meet high quality expectations low cost and on-time delivery which in
turn helps the organization gain a competitive edge
The production divisions council which checked the plants objectives occasionally modifying them taking into
account the companys profit targets replaced the production allowance councils After approval these objectives
became the Kaizen norm of each plant in terms of production efficiency The method of determining the
production efficiency was altered to make it less constrained as the standard time was fixed by measuring the time
really required for workers operations whereas earlier standard time was fixed on the basis of the best standard
time marked in the past
20
Chapter 4 Industry Profile
21
CHAPTER 4 Industry Profile
The Trans-nationals were also serious about developing vendors in India India is
bound to become an important destination for the global auto industry It took the financial turmoil in South East
Asia and the slowdown in the Chinese auto market to reinforce the targeting to Indian Market The new interest in
the small car segment also reflects certain amount of bullishness on the part of auto manufacturers about India
Despite projected over capacities--and current losses carmakers continued to queue
up their investments for small car segment To day there are 10 global auto majorsmdashincluding the $13-billion
Suzuki Motor (Japan) the $65-billion Daewoo (South Korea) the $147-billion Ford (US) the $47-billion Fiat
(Italy) and the $168-billion General Motors (US) operating in Indian Market
Chapter 41 The Pre 1997 Automobile Market
As late as 1997 the auto market in India was clearly segmented At the entry level
were MULs 800-cc car--priced between Rs 210-lakh and Rs 245 lakh--and the Omni at Rs 175 lakh At the
next level were the 993-cc Zen--priced at Rs 370 lakh--and the 999-cc Fiat Uno (Rs 362 lakh) Then came the
1300-cc Esteem models--priced between Rs 469 lakh and Rs 595 lakh--the 1498-cc Cielo (Rs 620 lakh) and
the 1598-cc Opel Astra (Rs 752 lakh) followed by premium cars like Mercedes-Benzs E-220 (Rs 22 lakh)
Changing Lanes
Two events have upset the equations in the price-segmented car market Daewoo has
Changed the lanes with the Cielo which is now priced at Rs 490 lakh and competes with the Zens top-end
model (Rs 440 lakh) and the Esteems lower-end version (Rs 469 lakh) Ceilo has created a new value segment
where the price is not proportionate to the size Daewoos strategic response has very clearly redefined
differentiation from price or size to value
22
Hyundai Motors India a subsidiary of the $27-billion Hyundai of South Korea launched
its 999-cc Santro at the Auto Expo 1998 in Delhi The model comes in five variants with the non-air-
conditioned manual transmission model priced at Rs 280 lakh and the semiautomatic air-conditioned GLS
model priced between Rs 315 lakh and Rs 4 lakh ClearlyHyundais strategy is aimed at taking on the market
leader Maruti Udyog Limited But by pricing the deluxe model at Rs 4 lakh it is also bridging the gap between
the small and the middle car segments At present Marutirsquos Esteem LX is priced Rs 70000 more than the
Santro GLS while the Cielo is priced Rs 90000 more
The further entry of new players will only blur the segments New entrants will be
involved in price war to find a foothold in the Indian market Few of the examples include
TELCOs positioning of its 1400-cc Indica car--launched in November 1998 and priced close to Marutirsquos 800-cc
model as a small carand Honda sneaking its 1300-cc City into the segment vacated by the Cielo although it is
an accepted fact that pricing or positioning cannot be done in isolation In a crowded market that must depend on
the available strategic opportunities
By creating new segments companies can broaden their market base increase
capacity utilization levels pre-empt competitors market entry moves and importantly lower costs While Maruti
did that by launching three versions of the Esteem TELCO accomplished it by using a common platform for the
Sumo the Estate and the Sierra models Hyundai is also planning to come to the market with five variants in near
future At high volumes costs can be lowered by more than 20 per cent across variants due to experience curve
effect
Configuring the sticker price for a car in the market today is no more a functional
decision It has become a strategic decision as it identifies the key segmentrsquos response
23
elasticity to the market offer The two key inhibiting factors for the poor response to the auto war fare in Indian
Car Market are basically the low per capita income at $350 (Rs 14000 at current prices) and the high
manufacturing costs A large part of the population expected to graduate from two wheelers to four wheelers has
not responded as they were supposed to during this period of time The domestic auto giant Maruti Udyog
limited still forces the new players to benchmark themselves against its products which roll out from a
depreciated yet high-volume plant It enjoys the fast mover as well as the cost advantage with the higher capacity
utilisation that helps him to cut costs across as more cars you make the cheaper they get
With the worldrsquos second largest and fastest-growing population there is no doubt that Indiarsquos potential in both
economic and population terms and the effect it will have on the auto industry in the next years During the last
two years export from this sector has grown significantly owing mainly to the export of cars and two-three-
wheelers
The industry is characterized by a very high percentage (75) of production in the 23 wheeler sector India ranks
as the largest manufacturer of motorcycles and second largest in manufacturing of scooters in the world India
today is also the second largest manufacturer of tractors as well The industry has intense forward and backward
integration
The Indian automotive industry had experienced an extraordinary growth due to the improvement in the living
standards of the middle class and an increase in their disposable incomes Moreover the liberalization steps such
as relaxation of the foreign exchange and equity regulations reduction of tariffs on imports and refining the
banking policies initiated by the Government of India have played an equally important role in bringing the
Indian Automotive industry to great heights
It is estimated that the sale of passenger cars have tripled compared to their sale in the last five years Thus the
sale of cars has reached a figure of 1 million users and is expected to increase further Its also to be noted that the
24
demand for luxurious models SUVs and mini-cars for family owners have shot up largely due to increase in the
consumers buying capacity
The Indian automotive market
India country fact file 2005
Population 1 080 264388
Per Capita GDP (PPP) $3400
GDP Growth Rate 71
Total automotive sales 2005 1 439604 (889333)
Total automotive production 2005 1 643460 (1 000567)
Market growth 2005 vs 2004 70 (64)
Best sold model PC segment 2004 Maruti Alto (168)
Best sold model LCV segment 2004 Maruti Omni (213)
(passenger cars) (market share in segment)
Source httpwwwsegmentycomIndiahtm
Chapter 42 The Protected Indian Domestic Automobile Sector
MUL which set up shop in 1984 had 10 long years of relative protection to emerge as a formidable competitor
with high volume and a strong brand image in the mind of Indian customers When the industry was deregulated
in 1993 the cost barrier had become so high that new companies could not dare to look at the small car segment
25
Instead they settled for the mid-size segment where both volumes and margins were expected to be high
However a shakeout in the Indian mid-size car segment the slowdown in international auto sales pushed
transnational auto majors into India which have now turned the tide against MULThe present generation small
cars launched recently are more contemporary in terms of both design and technology while Marutis small-car
technology is at least a decade old
Keeping the future growth potential of Indian market in mind the auto majors are prepared to bear losses for the
next 10 years This will help them to gain a good market share the long run and provide breathing space to
counter the strategic moves of the leader Hence the narrowing price differential between the old and the new
small cars is the first call of the auto majors against Maruti in Indian Market If Maruti has to try and match the
features of new generation small cars it would mean additional costs On the contrary if Maruti decides to
hold its price line and add new features it could translate into losses or at least low profits But MUL can still
bank on at least two Suzuki models the proposed 657-cc Cervo C and the current 996-cc Wagon R to battle its
rivals in the future
Chapter 43 The Advent of the Auto Majors
Besides bracing up for losses in the initial years auto majors like Hyundai and Daewoo are banking on exports
too At the moment export may look unattractive because of the South Asian meltdown but in the long run low
production costs and component-manufacturing skills will make India- made cars competitive at global market
place Hence they are looking India as a production base to cater to the growing Asian market by way of
outsourcing from Indian manufacturing base However many a hurdles they have to cross on the journey to
profitability
26
The investments necessary for a large plant are simply huge Daewoo has so far sunk Rs 2700 crore in a
120-lakh-unit-a-year plant Unlike China which has restricted the number of companies India has followed an
open door policy for car manufacturers which has resulted in emergence of fragmented markets with distributed
capacity
An Original Equipment Manufacturer (OEM) needs a minimum economic size of 150 lakh cars a year to attract
vendor interest Daewoo was able to slash the Cielos price as it is cheaper to import components because of the
devaluation of the South Asian currencies The auto majors are lobbying with the government to ease the strict
indigenisation norms in the new automobile policy so that they can import the components from other countries
This will help them to cut the prices and to go head on the market leader particularly in a price responsive market
like that of small car segment
The other argument is that with the given import duty of 103 per cent on Completely Knocked-Down Kits
(CKDs) which is the same as that on Completely Built-up Units (CBUs) and 68 per cent on components the
imports will become costlier and compel companies to localize their manufacture The exposure to currency
fluctuations which crippled the four Japanese light commercial vehicle projects in the late 1980s is also minimal
when a company localizes component manufacture
Besides lean manufacturing techniques like Just-In-Time (JIT) are possible only when the supplier is located
close to the manufacturing unit If Maruti is a success story it is only because it indigenised 85 per cent of its
components within five years of going on-stream
Then theres the question of servicing the replacement market for spares Customers typically expect
components to be available locally and at competitive prices Imports cannot guarantee that but it is a
27
tremendous job to localize components at the right quality and price given the supplier problems in prevalent in
India
An Original Equipment Manufacturerrsquos competitive advantage lies in its marketing skills Having achieved price
and technology parity it can easily woo the consumer with attractive financing schemes and superior after-sales
service Nudged by the competition most auto players have a clutch of schemes to offer Daewoo Motors India
provides interestfree car finance Ford Motor and General Motors have slashed interest rates MULs joint
venture finance company Maruti Countrywide is offering loans at 1350 per cent when the prevailing lending
rate is 17 per cent and above
Chapter 44 The After Sales Service Scenario
After sales service for cars is as critical as showroom deals Maruti services its 2 million customers through an
army of 174 dealers spread across the country It will be impossible for a company to duplicate such
infrastructure particularly with investments in a metro-based showroom going up to Rs 4 crore Margins in
retailing are moving from actual sales to after sales service
The problem of price war is evident with Auto majors as much as with dealers In a bid to woo the customers
dealers particularly in non-prime locations are cutting their margins It will not be surprising if single-brand
dealers eventually turn into multi-brand sellers in future
Doing so will benefit all the three constituents in the marketing chain the OEM the dealer and the buyer The
carmaker can expand his reach without expensive investment the dealer can increase his revenue and the
customer gets a variety of models and brands under one roof in future
The local partner will be the loser in this fierce battle Without the means to make either matching equity or
technological investment the Indian collaborator will be driven off the road
28
It has already happened to the Rs 166-crore DCM which tied up with Daewoo Motors and can happen to both
the Rs 1258-crore Hindustan Motors (Partner General Motors) and the Rs 360657 crore Mahindra amp Mahindra
(Partner Ford Motor)
So they are reconciled to adopting a minority role or becoming auto component vendors This list includes
Siddharth Shrirams Rs 430-crore Siel (Partner Honda) the Kirloskars (Partner Toyota) and the Munjals of the
Rs 2000-crore Hero Group (Partner BMW) And the evidence is compelling eg Hindusthan Motors has a
passive role in its joint venture with General Motors although the Opel Astra is manufactured at HMs Halol plant
in Gujarat The same can be forecasted about Mahindra and Mahindrarsquos joint venture with Ford Motor What can
prolong the life of the joint venture is distribution muscle as it will take at least five years for a transnational auto
major to build a strong distribution channel in this country
By all accounts the auto industry is headed for a glut With an estimated demand for cars to touch 9 lakhs in
2001-2002 the installed capacity will rise to 16 lakhs So the current growth rate in Indian market is not
sustainable There will be at least two years of stagnant or declining demand before the resumption of the growth
trendThere is a projected demand of 1-lakh cars in the mid-segment alone by 2001-2002 And the car numbers
will add up to around 6 lakh a year That will engender a shakeout which is already afoot in the other Asian
markets For instance poor off -take and a consequent build-up of car inventories has led to a fierce price-war in
China
Chapter 45 Market Potential of Indian Automobile Segment
The demand for the small car will continue to drive growth for the next five years Of the total sales of Maruti in
2000-2001around 85 per cent were small cars The Esteems sales dropped in the same period where as the small
cars drove MULs sales So demand for small cars will leap only if certain conditions are fulfilled
29
Rise in the Income Levels In the US auto demand rises by 4 per cent for every 1 per cent increase in the real
Gross Domestic Product but this is irrelevant for India as only the top 150 per cent of the population
can afford a car The demand can shoot up if the income levels of the top 5 per cent continue to rise in future
Level Of Motorization It is stagnant at 170 cars per 1000 people for decades However in the post-liberalization
period the motorization level has leaped to 370 cars per 1000 Although it is still lower than the levels in the
developed markets motorization is bound to rise further in the coming years
Chapter 451 Vehicle Prices
Falling imports and excise duties coupled with competition will continue to boost demand and
the prices are likely to fall further at least in the short run
Chapter 452 Consumer Finance
Over 60 per cent of customers opt for consumer finance That figure could go up if interest
rates continue to fall
Chapter 453 Infrastructure
Traffic congestion and bad roads could deter potential buyers from going for small cars
particularly in small cities of India The future is not very heartening in this aspect
Chapter 454 Product Availability
As manufacturers shift their attention to the small car more and more people will be able to
afford it and demand will only rise in the future period of time
30
Chapter 46 The Future-Indian Automobile
There is a sharp contrast in the buying behavior of Indian Consumer compared to their western counter parts yet
there is no doubt that Indian car market is going to increasingly resemble the latter In the West the industry is
likely to be dominated by three or four major players With a likely demand of 11 lakh cars by 2006 there will be
a few niche players like BMW Mercedes-Benz and Audi with luxury cars to offer Unless car manufacturers
have a large range of vehicle to offer they will be unable to subsidize their costlier models
The market will consolidate to few segments The carmaker has to make diverse models based on diverse and
flexible platforms Products like the stripped-down economy car the sports utility vehicle or the van should be
built on the same platform For the price-sensitive customers there can be a no-frills version a loaded version for
the middle customer and luxury car manufacturers can target the high-end customers
The fortunes of the autoobile industry will continue to hinge on the large price sensitive customers who will
graduate to the higher end of the market over a period of time
Until then the small car will continue to drive demand and most of the car-manufacturers are
gearing up for this eventuality
31
Chapter 5 Company Profile
ldquoTata Motorsrdquo
32
CHAPTER 5 Company ProfileTata Motors
Tata Motors previously known as Tata Engineering and Locomotive Co Ltd (TELCO) is one of the largest
companies in the Tata Group and one of Indias largest business houses Tata Motors is Indias leading
commercial vehicle manufacturer and the third largest passenger car manufacturer The company is the sixth
largest truck manufacturer in the world Tata Motors recently received the Balanced Scorecard Collaborative Hall
of Fame Award for having achieved a significant turnaround of its overall performance A comprehensive quality
improvement and cost cutting initiative in September 2000 has played an important role in the companys
turnaround from a loss of Rs 500 crores in the year ended March 2001 to a profit of Rs 28 crores in the first
quarter of 2002-2003
Tata Engineering and Locomotive Company (TELCO)
Chapter 51 History amp Evolution
Tata Engineering and Locomotive Company Ltd popularly known as Telco was incorporated in 1945 to
manufacture steam locomotives In 1954 the company diversified into automobile manufacturing through a
collaboration with Daimler-Benz for the manufacture of commercial vehicles By the time the collaboration ended
in 1969 Telco had not only become an independent producer of medium commercial vehicles (MCVs) with
negligible import contentbut had developed the capability of designing and developing such vehicles The
Company progressively widened its product range to cover heavy commercial vehicles (HCVs) and light
commercial vehicles (LCVs) implementing one expansion program after another
To sustain the unrelenting pace of its growth Telco added machining press and assembly
33
capacities set up its own forge and foundries and virtually created the countryrsquos automobile ancillary industry
The Company even developed facilities for designing and manufacturing state-of-the-art machine tools material
handling equipment dies and fixtures To accommodate the Companyrsquos growing activity base a large modern
complex was set up at Pune in western India and a new plant became operational at Lucknow in the north of the
country
To provide a business focus for the Companyrsquos main activity areas Telco has created twobusiness unitsrsquo -
Automobiles and Construction Equipment ndash both of which have notched up record-breaking results
Telco today has a domestic market share of 68 in the MCVHCV segment 64 in the LCV segment and 32
in the multi-utility segment Apart from commercial vehicles which range from 1 ton to 35 tons GVW Telcorsquos
automobile products also include passenger vehicles and an extraordinarily popular multi-utility vehicle All these
products have been developed inhouse by the Companyrsquos own RampD Center This Center is equipped with the
latest computeraided design hardware and software enabling the company to respond quickly to changing
customer needs both in India and abroad
Telco has been exporting its products since 1969 and currently exports about a tenth of its
output Export markets include the Middle East Africa and Southeast Asia as well as
developed countries in Europe like France UK and Spain It is intended that exports should account for 20 of
the automobiles sold by the Company
Telcorsquos second line of business Construction Equipment has also grown rapidly and the
Company currently commands a 61 share in the excavator market and 90 in the crawler cranes market in
India The hydraulically operated construction equipment made by the company is in collaboration with Hitachi
34
Construction Machinery Limited of Japan There are ambitious plans for widening the range of excavators made
by the company and for adding new lines of construction equipment A recent addition to the excavator range is
Backhoe Loader
Telco is one of Indias largest private sector companies With a turnover of Rs 6637 billion it is the countrys
leading commercial vehicle manufacturer and the worldrsquos sixth largest automobile company
The widely successful Tata Indica which is Euro 1 and 2 compliant is the countryrsquos first
indigenously designed developed and manufactured passenger car The company also
makes several other passengers vehicles including the Safari the Sumo the Sierra the Tata Estate and the
Tatamobile pick-up
The companyrsquos products have received wide acceptance not only in India but also in markets in the Middle East
Asia Africa and Europe
Chapter 52 Areas of business
The company manufactures medium heavy and light commercial vehicles multi-utility
vehicles and passenger cars It also makes general and special purpose machines for
automotive applications at its machine tool division These include NCCNC horizontal and inline machining
centers flexible manufacturing systems CNC cylindrical grinding machines and robots for welding cutting
painting and other applications
In 1999 the companyrsquos revenues from its four manufacturing plants at three locations in India were Rs 6637
billion ($15735 million) In 1998 they were Rs 7026 billion ($1893 million) (The average exchange rate in
1999 was Rs 4218 to one US dollar)
35
In the year ended 31 March 2000 the companyrsquos total exports were worth about Rs 50553 crore against about
Rs 60078 crore in the previous year
Locations
The companyrsquos manufacturing plants in India are at Jamshedpur in Bihar Pimpri and
Chinchwad near Pune in Maharashtra and Lucknow in Uttar Pradesh A fifth manufacturing facility is being set
up at Dharwad in Karnataka
Collaborations
The Company has technical tie-ups with
bull The Institute of Development in Automotive Engineering SPA Italy for assistance in
small car body design and styling
bull Nachi Fujikoshi Corporation Japan for robots for welding painting and other
automotive applications
bull Le Moteur Moderne France for the development of diesel and petrol engines for
passenger cars and
bull Robert Bausch GmbH Germany for application work on the engine management
system for 4 PL petrol engines
36
Chapter 53 Tata Motors ndashSuccessful Car Indica
TELCO launched Indica when the TATA group was in red Telco chairman Ratan Tata said that the 1400 cc car
Indica would drive the company out of the red
Tata while talking to reporters at the IETF 99 in a videoconference from Mumbai said that the overwhelming
response of over 125 lakh initial bookings for the Indica had come as a surprise It seems we touched the
national chord somewhere as people responded to the fact that this is the first Indian car said Tata Indica is not
the end of the road for Telco when it comes to passenger cars It is just the beginning as there are more to come
said Tata adding that the company was working on another mid-size car after Indica
Telco had to produce 60000 cars a year to break-even The group created two
organizations within Telco one dealing with commercial vehicles and the other with passenger cars The
company under took a major restructuring exercise whereby the passenger car and commercial vehicles divisions
would function as two separate business units Telco had a strategy to go for exports after addressing the initial
requirements of the domestic market
Awards and Recognition
In May 2000 Tata Engineering and Locomotive Company Ltd (Telco) won a national award for successful
indigenous technology used in the Indica car project The award titled National award for successful
commercialization of indigenous technology by an industrial concern for indigenous development and
commercialization of Tata Indica car was presented by the minister for human resource development science and
technology and ocean development
Dr Murli Manohar Joshi
37
In November 1999 Telco was awarded the Department of scientific and industrial research
national award for indigenous design of the Tata Indica It was the first company in India to implement stringent
emission norms well ahead of the mandate dates
Promotions
The Indica advertising made interest for the car go into overdrive The campaign revolved around the premise that
the Indica would not just meet peoples expectations it would exceed them Every advertisement has a story to
tell
Pre launch Campaign
The Indica campaign began in the right earnest in December 1998 It was advertised as the launch of a car that
will spell doom for the small cars It was directly aimed at Maruti 800 The ad line used in the first campaign was
ldquoCar makers will suddenly remember all the thing they forgot to give yourdquo This hinted that Indica would have
more features than any of the existing small cars Indica used the catch lines like ldquo More car per Carrdquo ldquoMore
dreams per carrdquo to suggest that Indica will be bigger in size to the existing small cars yet be in the small car
category It competes with the mid size cars on size and give them a run for their money with its cheaper price
tag
At the launch of the car TELCO claimed that the people would never have to suffer from a small car again and
that the n end of the year (1998) would be the end of the small cars
Launch Campaign
The launch campaign of Indica focussed on the many advantages that it offered over other cars in the same
segment It promised the customers more than the current offerings Its first advertisement carried the following
catch line ldquo50cc moped 100cc bike 800cc car Time you asked for morerdquo
38
It then concentrated its efforts on criticizing the negative aspects of Maruti 800 and highlighted how Indica has
removed those very defects and presented a very sophisticated and modern car to the Indian customer It even
pointed out that the shape of Maruti was very unconventional and that people would prefer the shape of Indica to
Maruti 800 The advertisement read ldquo Box shaped bubble shaped wedge shaped But then Gentlemen prefer
curvesrdquo
The launch campaign also focussed on the roomy interiors of Indica a feature not offered by Maruti at that point
of time Also the expertise of TATA in diesel engines and fuel efficiency of these were the highlight of the launch
campaign of Tata Indica
Post Launch Campaigns
While the Launch campaign focussed on the features of Indica the post launch advertisements focussed on the
superior after sales service and longer warranty periods offered by Indica
Telco was the first company to offer an 18-month warranty period on engine parts The most famous line used
during this campaign was ldquoWe could go on and on about service or give you the one word summary TATArdquo
While their main adversary was the Maruti 800 Telco felt that it could also tap the mid size segment using the
selling point of space given by Indica They carried a campaign which said ldquoForget small cars we even make big
cars feel smallrdquo
It then went on to highlight the fact that Indica was Euro II compliant even before it was legally binding upon car
manufacturers to do so It also highlighted the concrete wall safety test that Indica withstands and tried to
showcase the car as a safe and strong car
39
Chapter 6 COST REDUCTION TECHNIQUES
IN TATA MOTORSrsquoS INDICA
40
Chapter 6 Tata Indica - The Making Of The Small Car
with objective of minimizing costs
The research provides an understanding of the issues concerning the supply chain management system at
Telco in regard to its small car Indica It outlines how Telco built the supply chain for the car by leveraging its
existing competencies and how it transformed itself from an integrated truck manufacturer to an automobile
integrator and from a product-centric company to competence- centric company The case discusses various
components of the supply chain and emphasises how Telco orchestrated them with the objective of minimizing
costs
ldquoTelcorsquos 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 comerdquo
- Business India March 22 1999
In the early 1990s Telcorsquos Chairman Ratan Tata (Tata) was flirting with the idea of developing a small
car By mid-1994 a rudimentary design was in place In 1995 Telco announced that it planned to build a car
which would be priced close to the Maruti 800 shaped like the Zen and spacious as an Ambassador
Producing the new small car ndash Indica ndash represented a different kind of challenge for Telco Should Tata succeed he
would change the face of Telco As a truck-maker Telco was so integrated that it even made it own castings and
forgings As an automaker it would have to focus on the value chain that stretched between raw materials and after-sales
41
service as well as assembling the parts into the complete automobile
For its new venture Telco outsourced 80 of the components (1200 of its 1500-plus parts) from 200-odd vendors To
develop the Indica Telco had to combine the learnings from its predecessors with its own unique supply chain
management strategies to ensure a sustainable low-cost platform
By learning to build and manage a supply chain it would set the ground for leveraging the capabilities of the
automotive component-manufacturers who already operated in its target markets In other words Telco planned
to use its skills as an integrator--bringing together products and services from both upstream and downstream
operations and packaging them for the customer under a brand name in its new venture
Globally a car could be built in 48 months with an investment of US $ 3 billion (Rs 1275 billion) Indica was
built in 31 months on a budget of Rs 17 billion This seemed to have been possible by focussing on the supply
chain
Chapter 61 THE OUTSOURCING STRATEGY
For Telco outsourcing seemed to be one of the most difficult aspects of producing the Indica Unlike global
automobile majors Ford Motors or General Motors which had a global vendor-base that could be replicated on
a smaller scale in India Telco had to create a vendor-base from scratch Moreover it did not have the expertise
either to design a car or to build an engine for it
Against this background Telco had to take its primary lsquomake-or-buyrsquo decisions for the key inputs-design
engine and transmission Telco decided to shop globally for the best deals and use its own expertise to make
42
whatever modifications were needed
(Refer Table I for the components outsourced by Telco)
TABLE I
OUTSOURCING THE COMPONENTS
Components Supplier
5 door hatchback IDEA Italy
Engine Institut Francais du Petrol
France
Assembly Line Nissanrsquos Plant Australia
Presses Mercedes Benz
Pistons and Piston rings India Pistons
Electrical components and fuel injection
systems Lucas-TVS
Steering systems Rane TRW Steering Systems
Clutch facings and rear (drum) brake linings Sundaram Brake Linings (SBL)
Seating Systems Tata-Johnson Controls
Radiators Tata-Toyo
Rear view mirrors Tata-Ficosa
Front and rear bumper dash-board inside
trims Tata-Auto Plastics
Air conditioning kits Subros Ltd
Wind screens and windows Asahi Glass
Fuel lines Imperial Auto
Differential assemblies Sona Steering
43
Sheet metal items JBM Tools
Source Business Today March 22 1999 and December 7 1999
Telco turned to the Italian company IDEA for the product-design It bought the engine from the Institut
Francais du Petrol of France and applied its engineering skills to adapt the engine requirements The transmission
was developed in-house at its Engineering Research Centre (ERC) at Pune Of the Rs 25 billion it spent on
designing the Indica the major share went in buying design tools and training its engineers in new skills Telcorsquos
engineers traveled regularly to the sites of its technology suppliers to receive training before the actual delivery
of the machines
Telco also outsourced its assembly line from Nissanrsquos plant in Australia for just Rs 900 million Telco
transplanted it at its factory at Chikli near Pune which was newly set up for Indica A new assembly line of the
same proportions would have cost at least Rs 4 billion Again of the 3 presses for the Indica only 1 was new
acquired for Rs 900 million while the other 2 were bought second-hand from Mercedes-Benz and modified to
suit the Indica
Telcorsquos engineers and the ERC did the application engineering programming installation and commissioning to
save around 45 of the technology costs The tooling for the car too was supplied internally by Telcorsquos machine
tool division To manage the supply chain better Telco kept the number of suppliers for Indica to just 200 as
compared to about 1000 for trucks Most of the parts were supplied by Telcorsquos traditional suppliersmdash TVS Rane
Group and Tata Auto Component Systems (Taco) who were single source suppliers Pressed parts assemblies
and drive shafts were sourced from single vendors
44
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
CHAPTER 25 Limitations
For Automobile Study Primary Data varies wrt Secondary Data on account of theoretical practices in field then
practical theories
With increasing disposable incomes and ever-growing burden on the public modes of transport the Indian
passenger car industry is heading for a bright future provided car manufacturers offer a world class cars that give
value for money use novel marketing concepts to entice potential buyers and offer good after-sales service
Demand for passenger cars in FY2002 is projected at approximately 970755 units while production is expected
to reach 1210000 units The year is likely to witness a spurt in exports due to excess supply and liberalization of
export policy by the government
Some of the future strategies that need to be addressed while entering in to Indian small car market include the
redesign of the vehicle to suit the Indian road conditions and to develop aggressive marketing strategy to counter
the cost advantage enjoyed by dominant players like Maruti due to high capacity utilization With growing
number of two wheeler owners opting for used cars vehicles with higher resale value and excellent service
network are likely to account for a major market share in the near future Moreover the introduction of Euro III
and Euro IV norms in the near future is likely to increase the scrapping rates of cars
Exports are likely to increase in the near future with the entry of international car giants like Daewoo Hyundai
Honda Siel GM and Ford that intend to use India as a manufacturing production base
14
Chapter 3 CRITICAL REVIEW OF
LITERATURE
15
CHAPTER 3 CRITICAL REVIEW OF LITERATURE
A just released customer research study titled Customers Say What Companies Dont Want to Hear throws a
bucket of ice water in the face of some core business management tenets mdash plus a number of keystone principles
of the marketing advertising and customer relationship management (CRM) industries
Greenberg adds Customers Say What Companies Dont Want To Hear proves a mission-critical strategic point
Businesses need to rethink their logic and develop new operating models based on customer centric behaviors and
valuations
Commenting on the findings Paul Greenberg author of the industry best-seller CRM at the Speed of Light
Customer Strategies for the 21st Century says Lee and Mangen have verified and amplified with hard data
the growing perception that the new breed of customer is here to stay and businesses need to react mdash or risk their
very existence
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 While a top manager should be the ideal customer he
should also be the greatest critic of his companys products If the CEO compromises or is only looking at the
margins then even if he is successful the companys success will be short lived
- Ratan Tata the Chairman Tata Group
16
Chapter 31 Automobile Market Overview
The domestic automobile market has been growing at 142 per cent CAGR over the past 4 years (2000-01 to
2004-05) while the auto components market has been growing at 192 per cent CAGR (2000-01 to 2003-04) The
industry (OEMs and suppliers together) contributed nearly 4 per cent to the countryrsquos GDP in 2003-04 The
automotive sector also offers significant employment opportunities It employs 045 million people directly and
around 10 million people indirectly
The industryrsquos capabilities in design engineering and manufacturing have been recognised the world over and
most automotive majors are looking to increasingly source auto components from India
India is emerging as one of the most attractive automotive markets in the world and is poised to become a key
sourcing base for auto components The table below captures the highlights of the sector in India that illustrates
its growing significanceSee Annexure A amp B
Indian Automobile Industry
Largest three wheeler market in the world
2nd largest two wheeler market in the world
4th largest passenger vehicle market in Asia
4th largest tractor market in the world
5th largest commercial vehicle market in the world
17
Chapter 32 Automobiles - Domestic Performance
The production and domestic sales of the automobiles in India have been growing strongly While production
increased from 48 million units in 2000-1 to 85 million units in 2004-05 (a CAGR of over 15 per cent) domestic
sales during the same period have gone up from 46 million to 79 million units (CAGR 142 per cent) A positive
trend in the domestic market is that the growth has not been driven by one or two segments but is consistent
across all key segments Two wheelers which constitute the majority of the industry volume have been growing
at a rate of 143 per cent three wheelers at a rate of 14 per cent and passenger vehicles at a rate of 113 per cent
Commercial vehicles have been growing at a higher rate of nearly 235 per cent although from a lower base
Since nearly all macro-economic indicators ndash GDP infrastructure population demographics interest rates etc ndash
are showing a favourable trend the domestic market for automobiles in India is expected to continue on its
growth trajectory
Chapter 33 Exports of automobiles from India
While the domestic sales of automobiles have been increasing at a significant rate exports have taken a quantum
leap in recent years The exports of automobiles from India have been growing at a CAGR of 39 per cent for the
past four years Exports growth has been spearheaded by the passenger vehicle segment which has grown at a
rate of 574 per cent
As a result the share of passenger vehicles in overall vehicle exports has increased from 18 per cent in 1998-99 to
26 per cent in 2004-05 Europe is the biggest importer of cars from the country while predominantly African
nations import buses and trucks The Association of South East Asian Nations (ASEAN) region is
the prime destination for Indian two wheelers
18
Chapter 34 REVIEW OF THESIS DONE
This is easy to understand because the per capita disposable income of the people has gone up remarkably Over
the last five years per capita personal disposable income has gone up by around 8 which has increased
purchasing capacity of the people in the country Other factors have also contributed to this high growth in Indian
automobile sector These include lowering age of first car users shorter replacement cycles rising duel income
families nw technology which is lowering cost of ownership low car penetration in the country and most
importantly growing steel production in the country In addition wide variety and easily available financing
options are also some of the major reasons for surge in demand for automobiles in India
Global automobile manufacturers are consistently streamlining their business process by outsourcing their non-
core activities to low-cost countries like IndiaGlobal automobile manufacturers are under tremendous pressures
to innovate their manufacturing process and at the same time to reduce costs In view of the present global
competitiveness they must not only develop new features to strengthen their customer requirements but also
follow the environmental and safety standards In addition the base price of a car is expected to remain same over
the next decade As a result companies are forced to source more components from low-cost countries like India
According to Mckinsey global outsourcing of automobile and auto components would reach US$375 billion by
2015 from US$65 billion in 2002 India has plenty of scope to garner this potential According to the management
consulting firm India has the potential to notch this opportunity and reach up to US$25 billion to emerge as
major sourcing destinations along with China Mexico and Thailand Besides low cost Indias auto components
industry has the major advantage of enormous skills in process product and capital engineeringmdashits excellent
manufacturing history and good education system
19
Human beings think our way is the best but at Toyota we are told we have to always change We believe there is
no perfect way so we continue to search The goal is to break the current condition through Kaizen
- Shoichiro Toyoda Chairman Toyota Motor Corporation in December 2000
When Kaizen is applied to the workplace it means continuous improvement for - managers and workers Thus
Kaizen involves everyone in an organization to make improvements without large capital investments It can be
seen as a culture of continuous sustained improvement focusing on eliminating waste in all systems and
processes The Kaizen strategy begins and ends with people With Kaizen an involved leadership guides people
continuously to improve their abilities to meet high quality expectations low cost and on-time delivery which in
turn helps the organization gain a competitive edge
The production divisions council which checked the plants objectives occasionally modifying them taking into
account the companys profit targets replaced the production allowance councils After approval these objectives
became the Kaizen norm of each plant in terms of production efficiency The method of determining the
production efficiency was altered to make it less constrained as the standard time was fixed by measuring the time
really required for workers operations whereas earlier standard time was fixed on the basis of the best standard
time marked in the past
20
Chapter 4 Industry Profile
21
CHAPTER 4 Industry Profile
The Trans-nationals were also serious about developing vendors in India India is
bound to become an important destination for the global auto industry It took the financial turmoil in South East
Asia and the slowdown in the Chinese auto market to reinforce the targeting to Indian Market The new interest in
the small car segment also reflects certain amount of bullishness on the part of auto manufacturers about India
Despite projected over capacities--and current losses carmakers continued to queue
up their investments for small car segment To day there are 10 global auto majorsmdashincluding the $13-billion
Suzuki Motor (Japan) the $65-billion Daewoo (South Korea) the $147-billion Ford (US) the $47-billion Fiat
(Italy) and the $168-billion General Motors (US) operating in Indian Market
Chapter 41 The Pre 1997 Automobile Market
As late as 1997 the auto market in India was clearly segmented At the entry level
were MULs 800-cc car--priced between Rs 210-lakh and Rs 245 lakh--and the Omni at Rs 175 lakh At the
next level were the 993-cc Zen--priced at Rs 370 lakh--and the 999-cc Fiat Uno (Rs 362 lakh) Then came the
1300-cc Esteem models--priced between Rs 469 lakh and Rs 595 lakh--the 1498-cc Cielo (Rs 620 lakh) and
the 1598-cc Opel Astra (Rs 752 lakh) followed by premium cars like Mercedes-Benzs E-220 (Rs 22 lakh)
Changing Lanes
Two events have upset the equations in the price-segmented car market Daewoo has
Changed the lanes with the Cielo which is now priced at Rs 490 lakh and competes with the Zens top-end
model (Rs 440 lakh) and the Esteems lower-end version (Rs 469 lakh) Ceilo has created a new value segment
where the price is not proportionate to the size Daewoos strategic response has very clearly redefined
differentiation from price or size to value
22
Hyundai Motors India a subsidiary of the $27-billion Hyundai of South Korea launched
its 999-cc Santro at the Auto Expo 1998 in Delhi The model comes in five variants with the non-air-
conditioned manual transmission model priced at Rs 280 lakh and the semiautomatic air-conditioned GLS
model priced between Rs 315 lakh and Rs 4 lakh ClearlyHyundais strategy is aimed at taking on the market
leader Maruti Udyog Limited But by pricing the deluxe model at Rs 4 lakh it is also bridging the gap between
the small and the middle car segments At present Marutirsquos Esteem LX is priced Rs 70000 more than the
Santro GLS while the Cielo is priced Rs 90000 more
The further entry of new players will only blur the segments New entrants will be
involved in price war to find a foothold in the Indian market Few of the examples include
TELCOs positioning of its 1400-cc Indica car--launched in November 1998 and priced close to Marutirsquos 800-cc
model as a small carand Honda sneaking its 1300-cc City into the segment vacated by the Cielo although it is
an accepted fact that pricing or positioning cannot be done in isolation In a crowded market that must depend on
the available strategic opportunities
By creating new segments companies can broaden their market base increase
capacity utilization levels pre-empt competitors market entry moves and importantly lower costs While Maruti
did that by launching three versions of the Esteem TELCO accomplished it by using a common platform for the
Sumo the Estate and the Sierra models Hyundai is also planning to come to the market with five variants in near
future At high volumes costs can be lowered by more than 20 per cent across variants due to experience curve
effect
Configuring the sticker price for a car in the market today is no more a functional
decision It has become a strategic decision as it identifies the key segmentrsquos response
23
elasticity to the market offer The two key inhibiting factors for the poor response to the auto war fare in Indian
Car Market are basically the low per capita income at $350 (Rs 14000 at current prices) and the high
manufacturing costs A large part of the population expected to graduate from two wheelers to four wheelers has
not responded as they were supposed to during this period of time The domestic auto giant Maruti Udyog
limited still forces the new players to benchmark themselves against its products which roll out from a
depreciated yet high-volume plant It enjoys the fast mover as well as the cost advantage with the higher capacity
utilisation that helps him to cut costs across as more cars you make the cheaper they get
With the worldrsquos second largest and fastest-growing population there is no doubt that Indiarsquos potential in both
economic and population terms and the effect it will have on the auto industry in the next years During the last
two years export from this sector has grown significantly owing mainly to the export of cars and two-three-
wheelers
The industry is characterized by a very high percentage (75) of production in the 23 wheeler sector India ranks
as the largest manufacturer of motorcycles and second largest in manufacturing of scooters in the world India
today is also the second largest manufacturer of tractors as well The industry has intense forward and backward
integration
The Indian automotive industry had experienced an extraordinary growth due to the improvement in the living
standards of the middle class and an increase in their disposable incomes Moreover the liberalization steps such
as relaxation of the foreign exchange and equity regulations reduction of tariffs on imports and refining the
banking policies initiated by the Government of India have played an equally important role in bringing the
Indian Automotive industry to great heights
It is estimated that the sale of passenger cars have tripled compared to their sale in the last five years Thus the
sale of cars has reached a figure of 1 million users and is expected to increase further Its also to be noted that the
24
demand for luxurious models SUVs and mini-cars for family owners have shot up largely due to increase in the
consumers buying capacity
The Indian automotive market
India country fact file 2005
Population 1 080 264388
Per Capita GDP (PPP) $3400
GDP Growth Rate 71
Total automotive sales 2005 1 439604 (889333)
Total automotive production 2005 1 643460 (1 000567)
Market growth 2005 vs 2004 70 (64)
Best sold model PC segment 2004 Maruti Alto (168)
Best sold model LCV segment 2004 Maruti Omni (213)
(passenger cars) (market share in segment)
Source httpwwwsegmentycomIndiahtm
Chapter 42 The Protected Indian Domestic Automobile Sector
MUL which set up shop in 1984 had 10 long years of relative protection to emerge as a formidable competitor
with high volume and a strong brand image in the mind of Indian customers When the industry was deregulated
in 1993 the cost barrier had become so high that new companies could not dare to look at the small car segment
25
Instead they settled for the mid-size segment where both volumes and margins were expected to be high
However a shakeout in the Indian mid-size car segment the slowdown in international auto sales pushed
transnational auto majors into India which have now turned the tide against MULThe present generation small
cars launched recently are more contemporary in terms of both design and technology while Marutis small-car
technology is at least a decade old
Keeping the future growth potential of Indian market in mind the auto majors are prepared to bear losses for the
next 10 years This will help them to gain a good market share the long run and provide breathing space to
counter the strategic moves of the leader Hence the narrowing price differential between the old and the new
small cars is the first call of the auto majors against Maruti in Indian Market If Maruti has to try and match the
features of new generation small cars it would mean additional costs On the contrary if Maruti decides to
hold its price line and add new features it could translate into losses or at least low profits But MUL can still
bank on at least two Suzuki models the proposed 657-cc Cervo C and the current 996-cc Wagon R to battle its
rivals in the future
Chapter 43 The Advent of the Auto Majors
Besides bracing up for losses in the initial years auto majors like Hyundai and Daewoo are banking on exports
too At the moment export may look unattractive because of the South Asian meltdown but in the long run low
production costs and component-manufacturing skills will make India- made cars competitive at global market
place Hence they are looking India as a production base to cater to the growing Asian market by way of
outsourcing from Indian manufacturing base However many a hurdles they have to cross on the journey to
profitability
26
The investments necessary for a large plant are simply huge Daewoo has so far sunk Rs 2700 crore in a
120-lakh-unit-a-year plant Unlike China which has restricted the number of companies India has followed an
open door policy for car manufacturers which has resulted in emergence of fragmented markets with distributed
capacity
An Original Equipment Manufacturer (OEM) needs a minimum economic size of 150 lakh cars a year to attract
vendor interest Daewoo was able to slash the Cielos price as it is cheaper to import components because of the
devaluation of the South Asian currencies The auto majors are lobbying with the government to ease the strict
indigenisation norms in the new automobile policy so that they can import the components from other countries
This will help them to cut the prices and to go head on the market leader particularly in a price responsive market
like that of small car segment
The other argument is that with the given import duty of 103 per cent on Completely Knocked-Down Kits
(CKDs) which is the same as that on Completely Built-up Units (CBUs) and 68 per cent on components the
imports will become costlier and compel companies to localize their manufacture The exposure to currency
fluctuations which crippled the four Japanese light commercial vehicle projects in the late 1980s is also minimal
when a company localizes component manufacture
Besides lean manufacturing techniques like Just-In-Time (JIT) are possible only when the supplier is located
close to the manufacturing unit If Maruti is a success story it is only because it indigenised 85 per cent of its
components within five years of going on-stream
Then theres the question of servicing the replacement market for spares Customers typically expect
components to be available locally and at competitive prices Imports cannot guarantee that but it is a
27
tremendous job to localize components at the right quality and price given the supplier problems in prevalent in
India
An Original Equipment Manufacturerrsquos competitive advantage lies in its marketing skills Having achieved price
and technology parity it can easily woo the consumer with attractive financing schemes and superior after-sales
service Nudged by the competition most auto players have a clutch of schemes to offer Daewoo Motors India
provides interestfree car finance Ford Motor and General Motors have slashed interest rates MULs joint
venture finance company Maruti Countrywide is offering loans at 1350 per cent when the prevailing lending
rate is 17 per cent and above
Chapter 44 The After Sales Service Scenario
After sales service for cars is as critical as showroom deals Maruti services its 2 million customers through an
army of 174 dealers spread across the country It will be impossible for a company to duplicate such
infrastructure particularly with investments in a metro-based showroom going up to Rs 4 crore Margins in
retailing are moving from actual sales to after sales service
The problem of price war is evident with Auto majors as much as with dealers In a bid to woo the customers
dealers particularly in non-prime locations are cutting their margins It will not be surprising if single-brand
dealers eventually turn into multi-brand sellers in future
Doing so will benefit all the three constituents in the marketing chain the OEM the dealer and the buyer The
carmaker can expand his reach without expensive investment the dealer can increase his revenue and the
customer gets a variety of models and brands under one roof in future
The local partner will be the loser in this fierce battle Without the means to make either matching equity or
technological investment the Indian collaborator will be driven off the road
28
It has already happened to the Rs 166-crore DCM which tied up with Daewoo Motors and can happen to both
the Rs 1258-crore Hindustan Motors (Partner General Motors) and the Rs 360657 crore Mahindra amp Mahindra
(Partner Ford Motor)
So they are reconciled to adopting a minority role or becoming auto component vendors This list includes
Siddharth Shrirams Rs 430-crore Siel (Partner Honda) the Kirloskars (Partner Toyota) and the Munjals of the
Rs 2000-crore Hero Group (Partner BMW) And the evidence is compelling eg Hindusthan Motors has a
passive role in its joint venture with General Motors although the Opel Astra is manufactured at HMs Halol plant
in Gujarat The same can be forecasted about Mahindra and Mahindrarsquos joint venture with Ford Motor What can
prolong the life of the joint venture is distribution muscle as it will take at least five years for a transnational auto
major to build a strong distribution channel in this country
By all accounts the auto industry is headed for a glut With an estimated demand for cars to touch 9 lakhs in
2001-2002 the installed capacity will rise to 16 lakhs So the current growth rate in Indian market is not
sustainable There will be at least two years of stagnant or declining demand before the resumption of the growth
trendThere is a projected demand of 1-lakh cars in the mid-segment alone by 2001-2002 And the car numbers
will add up to around 6 lakh a year That will engender a shakeout which is already afoot in the other Asian
markets For instance poor off -take and a consequent build-up of car inventories has led to a fierce price-war in
China
Chapter 45 Market Potential of Indian Automobile Segment
The demand for the small car will continue to drive growth for the next five years Of the total sales of Maruti in
2000-2001around 85 per cent were small cars The Esteems sales dropped in the same period where as the small
cars drove MULs sales So demand for small cars will leap only if certain conditions are fulfilled
29
Rise in the Income Levels In the US auto demand rises by 4 per cent for every 1 per cent increase in the real
Gross Domestic Product but this is irrelevant for India as only the top 150 per cent of the population
can afford a car The demand can shoot up if the income levels of the top 5 per cent continue to rise in future
Level Of Motorization It is stagnant at 170 cars per 1000 people for decades However in the post-liberalization
period the motorization level has leaped to 370 cars per 1000 Although it is still lower than the levels in the
developed markets motorization is bound to rise further in the coming years
Chapter 451 Vehicle Prices
Falling imports and excise duties coupled with competition will continue to boost demand and
the prices are likely to fall further at least in the short run
Chapter 452 Consumer Finance
Over 60 per cent of customers opt for consumer finance That figure could go up if interest
rates continue to fall
Chapter 453 Infrastructure
Traffic congestion and bad roads could deter potential buyers from going for small cars
particularly in small cities of India The future is not very heartening in this aspect
Chapter 454 Product Availability
As manufacturers shift their attention to the small car more and more people will be able to
afford it and demand will only rise in the future period of time
30
Chapter 46 The Future-Indian Automobile
There is a sharp contrast in the buying behavior of Indian Consumer compared to their western counter parts yet
there is no doubt that Indian car market is going to increasingly resemble the latter In the West the industry is
likely to be dominated by three or four major players With a likely demand of 11 lakh cars by 2006 there will be
a few niche players like BMW Mercedes-Benz and Audi with luxury cars to offer Unless car manufacturers
have a large range of vehicle to offer they will be unable to subsidize their costlier models
The market will consolidate to few segments The carmaker has to make diverse models based on diverse and
flexible platforms Products like the stripped-down economy car the sports utility vehicle or the van should be
built on the same platform For the price-sensitive customers there can be a no-frills version a loaded version for
the middle customer and luxury car manufacturers can target the high-end customers
The fortunes of the autoobile industry will continue to hinge on the large price sensitive customers who will
graduate to the higher end of the market over a period of time
Until then the small car will continue to drive demand and most of the car-manufacturers are
gearing up for this eventuality
31
Chapter 5 Company Profile
ldquoTata Motorsrdquo
32
CHAPTER 5 Company ProfileTata Motors
Tata Motors previously known as Tata Engineering and Locomotive Co Ltd (TELCO) is one of the largest
companies in the Tata Group and one of Indias largest business houses Tata Motors is Indias leading
commercial vehicle manufacturer and the third largest passenger car manufacturer The company is the sixth
largest truck manufacturer in the world Tata Motors recently received the Balanced Scorecard Collaborative Hall
of Fame Award for having achieved a significant turnaround of its overall performance A comprehensive quality
improvement and cost cutting initiative in September 2000 has played an important role in the companys
turnaround from a loss of Rs 500 crores in the year ended March 2001 to a profit of Rs 28 crores in the first
quarter of 2002-2003
Tata Engineering and Locomotive Company (TELCO)
Chapter 51 History amp Evolution
Tata Engineering and Locomotive Company Ltd popularly known as Telco was incorporated in 1945 to
manufacture steam locomotives In 1954 the company diversified into automobile manufacturing through a
collaboration with Daimler-Benz for the manufacture of commercial vehicles By the time the collaboration ended
in 1969 Telco had not only become an independent producer of medium commercial vehicles (MCVs) with
negligible import contentbut had developed the capability of designing and developing such vehicles The
Company progressively widened its product range to cover heavy commercial vehicles (HCVs) and light
commercial vehicles (LCVs) implementing one expansion program after another
To sustain the unrelenting pace of its growth Telco added machining press and assembly
33
capacities set up its own forge and foundries and virtually created the countryrsquos automobile ancillary industry
The Company even developed facilities for designing and manufacturing state-of-the-art machine tools material
handling equipment dies and fixtures To accommodate the Companyrsquos growing activity base a large modern
complex was set up at Pune in western India and a new plant became operational at Lucknow in the north of the
country
To provide a business focus for the Companyrsquos main activity areas Telco has created twobusiness unitsrsquo -
Automobiles and Construction Equipment ndash both of which have notched up record-breaking results
Telco today has a domestic market share of 68 in the MCVHCV segment 64 in the LCV segment and 32
in the multi-utility segment Apart from commercial vehicles which range from 1 ton to 35 tons GVW Telcorsquos
automobile products also include passenger vehicles and an extraordinarily popular multi-utility vehicle All these
products have been developed inhouse by the Companyrsquos own RampD Center This Center is equipped with the
latest computeraided design hardware and software enabling the company to respond quickly to changing
customer needs both in India and abroad
Telco has been exporting its products since 1969 and currently exports about a tenth of its
output Export markets include the Middle East Africa and Southeast Asia as well as
developed countries in Europe like France UK and Spain It is intended that exports should account for 20 of
the automobiles sold by the Company
Telcorsquos second line of business Construction Equipment has also grown rapidly and the
Company currently commands a 61 share in the excavator market and 90 in the crawler cranes market in
India The hydraulically operated construction equipment made by the company is in collaboration with Hitachi
34
Construction Machinery Limited of Japan There are ambitious plans for widening the range of excavators made
by the company and for adding new lines of construction equipment A recent addition to the excavator range is
Backhoe Loader
Telco is one of Indias largest private sector companies With a turnover of Rs 6637 billion it is the countrys
leading commercial vehicle manufacturer and the worldrsquos sixth largest automobile company
The widely successful Tata Indica which is Euro 1 and 2 compliant is the countryrsquos first
indigenously designed developed and manufactured passenger car The company also
makes several other passengers vehicles including the Safari the Sumo the Sierra the Tata Estate and the
Tatamobile pick-up
The companyrsquos products have received wide acceptance not only in India but also in markets in the Middle East
Asia Africa and Europe
Chapter 52 Areas of business
The company manufactures medium heavy and light commercial vehicles multi-utility
vehicles and passenger cars It also makes general and special purpose machines for
automotive applications at its machine tool division These include NCCNC horizontal and inline machining
centers flexible manufacturing systems CNC cylindrical grinding machines and robots for welding cutting
painting and other applications
In 1999 the companyrsquos revenues from its four manufacturing plants at three locations in India were Rs 6637
billion ($15735 million) In 1998 they were Rs 7026 billion ($1893 million) (The average exchange rate in
1999 was Rs 4218 to one US dollar)
35
In the year ended 31 March 2000 the companyrsquos total exports were worth about Rs 50553 crore against about
Rs 60078 crore in the previous year
Locations
The companyrsquos manufacturing plants in India are at Jamshedpur in Bihar Pimpri and
Chinchwad near Pune in Maharashtra and Lucknow in Uttar Pradesh A fifth manufacturing facility is being set
up at Dharwad in Karnataka
Collaborations
The Company has technical tie-ups with
bull The Institute of Development in Automotive Engineering SPA Italy for assistance in
small car body design and styling
bull Nachi Fujikoshi Corporation Japan for robots for welding painting and other
automotive applications
bull Le Moteur Moderne France for the development of diesel and petrol engines for
passenger cars and
bull Robert Bausch GmbH Germany for application work on the engine management
system for 4 PL petrol engines
36
Chapter 53 Tata Motors ndashSuccessful Car Indica
TELCO launched Indica when the TATA group was in red Telco chairman Ratan Tata said that the 1400 cc car
Indica would drive the company out of the red
Tata while talking to reporters at the IETF 99 in a videoconference from Mumbai said that the overwhelming
response of over 125 lakh initial bookings for the Indica had come as a surprise It seems we touched the
national chord somewhere as people responded to the fact that this is the first Indian car said Tata Indica is not
the end of the road for Telco when it comes to passenger cars It is just the beginning as there are more to come
said Tata adding that the company was working on another mid-size car after Indica
Telco had to produce 60000 cars a year to break-even The group created two
organizations within Telco one dealing with commercial vehicles and the other with passenger cars The
company under took a major restructuring exercise whereby the passenger car and commercial vehicles divisions
would function as two separate business units Telco had a strategy to go for exports after addressing the initial
requirements of the domestic market
Awards and Recognition
In May 2000 Tata Engineering and Locomotive Company Ltd (Telco) won a national award for successful
indigenous technology used in the Indica car project The award titled National award for successful
commercialization of indigenous technology by an industrial concern for indigenous development and
commercialization of Tata Indica car was presented by the minister for human resource development science and
technology and ocean development
Dr Murli Manohar Joshi
37
In November 1999 Telco was awarded the Department of scientific and industrial research
national award for indigenous design of the Tata Indica It was the first company in India to implement stringent
emission norms well ahead of the mandate dates
Promotions
The Indica advertising made interest for the car go into overdrive The campaign revolved around the premise that
the Indica would not just meet peoples expectations it would exceed them Every advertisement has a story to
tell
Pre launch Campaign
The Indica campaign began in the right earnest in December 1998 It was advertised as the launch of a car that
will spell doom for the small cars It was directly aimed at Maruti 800 The ad line used in the first campaign was
ldquoCar makers will suddenly remember all the thing they forgot to give yourdquo This hinted that Indica would have
more features than any of the existing small cars Indica used the catch lines like ldquo More car per Carrdquo ldquoMore
dreams per carrdquo to suggest that Indica will be bigger in size to the existing small cars yet be in the small car
category It competes with the mid size cars on size and give them a run for their money with its cheaper price
tag
At the launch of the car TELCO claimed that the people would never have to suffer from a small car again and
that the n end of the year (1998) would be the end of the small cars
Launch Campaign
The launch campaign of Indica focussed on the many advantages that it offered over other cars in the same
segment It promised the customers more than the current offerings Its first advertisement carried the following
catch line ldquo50cc moped 100cc bike 800cc car Time you asked for morerdquo
38
It then concentrated its efforts on criticizing the negative aspects of Maruti 800 and highlighted how Indica has
removed those very defects and presented a very sophisticated and modern car to the Indian customer It even
pointed out that the shape of Maruti was very unconventional and that people would prefer the shape of Indica to
Maruti 800 The advertisement read ldquo Box shaped bubble shaped wedge shaped But then Gentlemen prefer
curvesrdquo
The launch campaign also focussed on the roomy interiors of Indica a feature not offered by Maruti at that point
of time Also the expertise of TATA in diesel engines and fuel efficiency of these were the highlight of the launch
campaign of Tata Indica
Post Launch Campaigns
While the Launch campaign focussed on the features of Indica the post launch advertisements focussed on the
superior after sales service and longer warranty periods offered by Indica
Telco was the first company to offer an 18-month warranty period on engine parts The most famous line used
during this campaign was ldquoWe could go on and on about service or give you the one word summary TATArdquo
While their main adversary was the Maruti 800 Telco felt that it could also tap the mid size segment using the
selling point of space given by Indica They carried a campaign which said ldquoForget small cars we even make big
cars feel smallrdquo
It then went on to highlight the fact that Indica was Euro II compliant even before it was legally binding upon car
manufacturers to do so It also highlighted the concrete wall safety test that Indica withstands and tried to
showcase the car as a safe and strong car
39
Chapter 6 COST REDUCTION TECHNIQUES
IN TATA MOTORSrsquoS INDICA
40
Chapter 6 Tata Indica - The Making Of The Small Car
with objective of minimizing costs
The research provides an understanding of the issues concerning the supply chain management system at
Telco in regard to its small car Indica It outlines how Telco built the supply chain for the car by leveraging its
existing competencies and how it transformed itself from an integrated truck manufacturer to an automobile
integrator and from a product-centric company to competence- centric company The case discusses various
components of the supply chain and emphasises how Telco orchestrated them with the objective of minimizing
costs
ldquoTelcorsquos 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 comerdquo
- Business India March 22 1999
In the early 1990s Telcorsquos Chairman Ratan Tata (Tata) was flirting with the idea of developing a small
car By mid-1994 a rudimentary design was in place In 1995 Telco announced that it planned to build a car
which would be priced close to the Maruti 800 shaped like the Zen and spacious as an Ambassador
Producing the new small car ndash Indica ndash represented a different kind of challenge for Telco Should Tata succeed he
would change the face of Telco As a truck-maker Telco was so integrated that it even made it own castings and
forgings As an automaker it would have to focus on the value chain that stretched between raw materials and after-sales
41
service as well as assembling the parts into the complete automobile
For its new venture Telco outsourced 80 of the components (1200 of its 1500-plus parts) from 200-odd vendors To
develop the Indica Telco had to combine the learnings from its predecessors with its own unique supply chain
management strategies to ensure a sustainable low-cost platform
By learning to build and manage a supply chain it would set the ground for leveraging the capabilities of the
automotive component-manufacturers who already operated in its target markets In other words Telco planned
to use its skills as an integrator--bringing together products and services from both upstream and downstream
operations and packaging them for the customer under a brand name in its new venture
Globally a car could be built in 48 months with an investment of US $ 3 billion (Rs 1275 billion) Indica was
built in 31 months on a budget of Rs 17 billion This seemed to have been possible by focussing on the supply
chain
Chapter 61 THE OUTSOURCING STRATEGY
For Telco outsourcing seemed to be one of the most difficult aspects of producing the Indica Unlike global
automobile majors Ford Motors or General Motors which had a global vendor-base that could be replicated on
a smaller scale in India Telco had to create a vendor-base from scratch Moreover it did not have the expertise
either to design a car or to build an engine for it
Against this background Telco had to take its primary lsquomake-or-buyrsquo decisions for the key inputs-design
engine and transmission Telco decided to shop globally for the best deals and use its own expertise to make
42
whatever modifications were needed
(Refer Table I for the components outsourced by Telco)
TABLE I
OUTSOURCING THE COMPONENTS
Components Supplier
5 door hatchback IDEA Italy
Engine Institut Francais du Petrol
France
Assembly Line Nissanrsquos Plant Australia
Presses Mercedes Benz
Pistons and Piston rings India Pistons
Electrical components and fuel injection
systems Lucas-TVS
Steering systems Rane TRW Steering Systems
Clutch facings and rear (drum) brake linings Sundaram Brake Linings (SBL)
Seating Systems Tata-Johnson Controls
Radiators Tata-Toyo
Rear view mirrors Tata-Ficosa
Front and rear bumper dash-board inside
trims Tata-Auto Plastics
Air conditioning kits Subros Ltd
Wind screens and windows Asahi Glass
Fuel lines Imperial Auto
Differential assemblies Sona Steering
43
Sheet metal items JBM Tools
Source Business Today March 22 1999 and December 7 1999
Telco turned to the Italian company IDEA for the product-design It bought the engine from the Institut
Francais du Petrol of France and applied its engineering skills to adapt the engine requirements The transmission
was developed in-house at its Engineering Research Centre (ERC) at Pune Of the Rs 25 billion it spent on
designing the Indica the major share went in buying design tools and training its engineers in new skills Telcorsquos
engineers traveled regularly to the sites of its technology suppliers to receive training before the actual delivery
of the machines
Telco also outsourced its assembly line from Nissanrsquos plant in Australia for just Rs 900 million Telco
transplanted it at its factory at Chikli near Pune which was newly set up for Indica A new assembly line of the
same proportions would have cost at least Rs 4 billion Again of the 3 presses for the Indica only 1 was new
acquired for Rs 900 million while the other 2 were bought second-hand from Mercedes-Benz and modified to
suit the Indica
Telcorsquos engineers and the ERC did the application engineering programming installation and commissioning to
save around 45 of the technology costs The tooling for the car too was supplied internally by Telcorsquos machine
tool division To manage the supply chain better Telco kept the number of suppliers for Indica to just 200 as
compared to about 1000 for trucks Most of the parts were supplied by Telcorsquos traditional suppliersmdash TVS Rane
Group and Tata Auto Component Systems (Taco) who were single source suppliers Pressed parts assemblies
and drive shafts were sourced from single vendors
44
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
Chapter 3 CRITICAL REVIEW OF
LITERATURE
15
CHAPTER 3 CRITICAL REVIEW OF LITERATURE
A just released customer research study titled Customers Say What Companies Dont Want to Hear throws a
bucket of ice water in the face of some core business management tenets mdash plus a number of keystone principles
of the marketing advertising and customer relationship management (CRM) industries
Greenberg adds Customers Say What Companies Dont Want To Hear proves a mission-critical strategic point
Businesses need to rethink their logic and develop new operating models based on customer centric behaviors and
valuations
Commenting on the findings Paul Greenberg author of the industry best-seller CRM at the Speed of Light
Customer Strategies for the 21st Century says Lee and Mangen have verified and amplified with hard data
the growing perception that the new breed of customer is here to stay and businesses need to react mdash or risk their
very existence
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 While a top manager should be the ideal customer he
should also be the greatest critic of his companys products If the CEO compromises or is only looking at the
margins then even if he is successful the companys success will be short lived
- Ratan Tata the Chairman Tata Group
16
Chapter 31 Automobile Market Overview
The domestic automobile market has been growing at 142 per cent CAGR over the past 4 years (2000-01 to
2004-05) while the auto components market has been growing at 192 per cent CAGR (2000-01 to 2003-04) The
industry (OEMs and suppliers together) contributed nearly 4 per cent to the countryrsquos GDP in 2003-04 The
automotive sector also offers significant employment opportunities It employs 045 million people directly and
around 10 million people indirectly
The industryrsquos capabilities in design engineering and manufacturing have been recognised the world over and
most automotive majors are looking to increasingly source auto components from India
India is emerging as one of the most attractive automotive markets in the world and is poised to become a key
sourcing base for auto components The table below captures the highlights of the sector in India that illustrates
its growing significanceSee Annexure A amp B
Indian Automobile Industry
Largest three wheeler market in the world
2nd largest two wheeler market in the world
4th largest passenger vehicle market in Asia
4th largest tractor market in the world
5th largest commercial vehicle market in the world
17
Chapter 32 Automobiles - Domestic Performance
The production and domestic sales of the automobiles in India have been growing strongly While production
increased from 48 million units in 2000-1 to 85 million units in 2004-05 (a CAGR of over 15 per cent) domestic
sales during the same period have gone up from 46 million to 79 million units (CAGR 142 per cent) A positive
trend in the domestic market is that the growth has not been driven by one or two segments but is consistent
across all key segments Two wheelers which constitute the majority of the industry volume have been growing
at a rate of 143 per cent three wheelers at a rate of 14 per cent and passenger vehicles at a rate of 113 per cent
Commercial vehicles have been growing at a higher rate of nearly 235 per cent although from a lower base
Since nearly all macro-economic indicators ndash GDP infrastructure population demographics interest rates etc ndash
are showing a favourable trend the domestic market for automobiles in India is expected to continue on its
growth trajectory
Chapter 33 Exports of automobiles from India
While the domestic sales of automobiles have been increasing at a significant rate exports have taken a quantum
leap in recent years The exports of automobiles from India have been growing at a CAGR of 39 per cent for the
past four years Exports growth has been spearheaded by the passenger vehicle segment which has grown at a
rate of 574 per cent
As a result the share of passenger vehicles in overall vehicle exports has increased from 18 per cent in 1998-99 to
26 per cent in 2004-05 Europe is the biggest importer of cars from the country while predominantly African
nations import buses and trucks The Association of South East Asian Nations (ASEAN) region is
the prime destination for Indian two wheelers
18
Chapter 34 REVIEW OF THESIS DONE
This is easy to understand because the per capita disposable income of the people has gone up remarkably Over
the last five years per capita personal disposable income has gone up by around 8 which has increased
purchasing capacity of the people in the country Other factors have also contributed to this high growth in Indian
automobile sector These include lowering age of first car users shorter replacement cycles rising duel income
families nw technology which is lowering cost of ownership low car penetration in the country and most
importantly growing steel production in the country In addition wide variety and easily available financing
options are also some of the major reasons for surge in demand for automobiles in India
Global automobile manufacturers are consistently streamlining their business process by outsourcing their non-
core activities to low-cost countries like IndiaGlobal automobile manufacturers are under tremendous pressures
to innovate their manufacturing process and at the same time to reduce costs In view of the present global
competitiveness they must not only develop new features to strengthen their customer requirements but also
follow the environmental and safety standards In addition the base price of a car is expected to remain same over
the next decade As a result companies are forced to source more components from low-cost countries like India
According to Mckinsey global outsourcing of automobile and auto components would reach US$375 billion by
2015 from US$65 billion in 2002 India has plenty of scope to garner this potential According to the management
consulting firm India has the potential to notch this opportunity and reach up to US$25 billion to emerge as
major sourcing destinations along with China Mexico and Thailand Besides low cost Indias auto components
industry has the major advantage of enormous skills in process product and capital engineeringmdashits excellent
manufacturing history and good education system
19
Human beings think our way is the best but at Toyota we are told we have to always change We believe there is
no perfect way so we continue to search The goal is to break the current condition through Kaizen
- Shoichiro Toyoda Chairman Toyota Motor Corporation in December 2000
When Kaizen is applied to the workplace it means continuous improvement for - managers and workers Thus
Kaizen involves everyone in an organization to make improvements without large capital investments It can be
seen as a culture of continuous sustained improvement focusing on eliminating waste in all systems and
processes The Kaizen strategy begins and ends with people With Kaizen an involved leadership guides people
continuously to improve their abilities to meet high quality expectations low cost and on-time delivery which in
turn helps the organization gain a competitive edge
The production divisions council which checked the plants objectives occasionally modifying them taking into
account the companys profit targets replaced the production allowance councils After approval these objectives
became the Kaizen norm of each plant in terms of production efficiency The method of determining the
production efficiency was altered to make it less constrained as the standard time was fixed by measuring the time
really required for workers operations whereas earlier standard time was fixed on the basis of the best standard
time marked in the past
20
Chapter 4 Industry Profile
21
CHAPTER 4 Industry Profile
The Trans-nationals were also serious about developing vendors in India India is
bound to become an important destination for the global auto industry It took the financial turmoil in South East
Asia and the slowdown in the Chinese auto market to reinforce the targeting to Indian Market The new interest in
the small car segment also reflects certain amount of bullishness on the part of auto manufacturers about India
Despite projected over capacities--and current losses carmakers continued to queue
up their investments for small car segment To day there are 10 global auto majorsmdashincluding the $13-billion
Suzuki Motor (Japan) the $65-billion Daewoo (South Korea) the $147-billion Ford (US) the $47-billion Fiat
(Italy) and the $168-billion General Motors (US) operating in Indian Market
Chapter 41 The Pre 1997 Automobile Market
As late as 1997 the auto market in India was clearly segmented At the entry level
were MULs 800-cc car--priced between Rs 210-lakh and Rs 245 lakh--and the Omni at Rs 175 lakh At the
next level were the 993-cc Zen--priced at Rs 370 lakh--and the 999-cc Fiat Uno (Rs 362 lakh) Then came the
1300-cc Esteem models--priced between Rs 469 lakh and Rs 595 lakh--the 1498-cc Cielo (Rs 620 lakh) and
the 1598-cc Opel Astra (Rs 752 lakh) followed by premium cars like Mercedes-Benzs E-220 (Rs 22 lakh)
Changing Lanes
Two events have upset the equations in the price-segmented car market Daewoo has
Changed the lanes with the Cielo which is now priced at Rs 490 lakh and competes with the Zens top-end
model (Rs 440 lakh) and the Esteems lower-end version (Rs 469 lakh) Ceilo has created a new value segment
where the price is not proportionate to the size Daewoos strategic response has very clearly redefined
differentiation from price or size to value
22
Hyundai Motors India a subsidiary of the $27-billion Hyundai of South Korea launched
its 999-cc Santro at the Auto Expo 1998 in Delhi The model comes in five variants with the non-air-
conditioned manual transmission model priced at Rs 280 lakh and the semiautomatic air-conditioned GLS
model priced between Rs 315 lakh and Rs 4 lakh ClearlyHyundais strategy is aimed at taking on the market
leader Maruti Udyog Limited But by pricing the deluxe model at Rs 4 lakh it is also bridging the gap between
the small and the middle car segments At present Marutirsquos Esteem LX is priced Rs 70000 more than the
Santro GLS while the Cielo is priced Rs 90000 more
The further entry of new players will only blur the segments New entrants will be
involved in price war to find a foothold in the Indian market Few of the examples include
TELCOs positioning of its 1400-cc Indica car--launched in November 1998 and priced close to Marutirsquos 800-cc
model as a small carand Honda sneaking its 1300-cc City into the segment vacated by the Cielo although it is
an accepted fact that pricing or positioning cannot be done in isolation In a crowded market that must depend on
the available strategic opportunities
By creating new segments companies can broaden their market base increase
capacity utilization levels pre-empt competitors market entry moves and importantly lower costs While Maruti
did that by launching three versions of the Esteem TELCO accomplished it by using a common platform for the
Sumo the Estate and the Sierra models Hyundai is also planning to come to the market with five variants in near
future At high volumes costs can be lowered by more than 20 per cent across variants due to experience curve
effect
Configuring the sticker price for a car in the market today is no more a functional
decision It has become a strategic decision as it identifies the key segmentrsquos response
23
elasticity to the market offer The two key inhibiting factors for the poor response to the auto war fare in Indian
Car Market are basically the low per capita income at $350 (Rs 14000 at current prices) and the high
manufacturing costs A large part of the population expected to graduate from two wheelers to four wheelers has
not responded as they were supposed to during this period of time The domestic auto giant Maruti Udyog
limited still forces the new players to benchmark themselves against its products which roll out from a
depreciated yet high-volume plant It enjoys the fast mover as well as the cost advantage with the higher capacity
utilisation that helps him to cut costs across as more cars you make the cheaper they get
With the worldrsquos second largest and fastest-growing population there is no doubt that Indiarsquos potential in both
economic and population terms and the effect it will have on the auto industry in the next years During the last
two years export from this sector has grown significantly owing mainly to the export of cars and two-three-
wheelers
The industry is characterized by a very high percentage (75) of production in the 23 wheeler sector India ranks
as the largest manufacturer of motorcycles and second largest in manufacturing of scooters in the world India
today is also the second largest manufacturer of tractors as well The industry has intense forward and backward
integration
The Indian automotive industry had experienced an extraordinary growth due to the improvement in the living
standards of the middle class and an increase in their disposable incomes Moreover the liberalization steps such
as relaxation of the foreign exchange and equity regulations reduction of tariffs on imports and refining the
banking policies initiated by the Government of India have played an equally important role in bringing the
Indian Automotive industry to great heights
It is estimated that the sale of passenger cars have tripled compared to their sale in the last five years Thus the
sale of cars has reached a figure of 1 million users and is expected to increase further Its also to be noted that the
24
demand for luxurious models SUVs and mini-cars for family owners have shot up largely due to increase in the
consumers buying capacity
The Indian automotive market
India country fact file 2005
Population 1 080 264388
Per Capita GDP (PPP) $3400
GDP Growth Rate 71
Total automotive sales 2005 1 439604 (889333)
Total automotive production 2005 1 643460 (1 000567)
Market growth 2005 vs 2004 70 (64)
Best sold model PC segment 2004 Maruti Alto (168)
Best sold model LCV segment 2004 Maruti Omni (213)
(passenger cars) (market share in segment)
Source httpwwwsegmentycomIndiahtm
Chapter 42 The Protected Indian Domestic Automobile Sector
MUL which set up shop in 1984 had 10 long years of relative protection to emerge as a formidable competitor
with high volume and a strong brand image in the mind of Indian customers When the industry was deregulated
in 1993 the cost barrier had become so high that new companies could not dare to look at the small car segment
25
Instead they settled for the mid-size segment where both volumes and margins were expected to be high
However a shakeout in the Indian mid-size car segment the slowdown in international auto sales pushed
transnational auto majors into India which have now turned the tide against MULThe present generation small
cars launched recently are more contemporary in terms of both design and technology while Marutis small-car
technology is at least a decade old
Keeping the future growth potential of Indian market in mind the auto majors are prepared to bear losses for the
next 10 years This will help them to gain a good market share the long run and provide breathing space to
counter the strategic moves of the leader Hence the narrowing price differential between the old and the new
small cars is the first call of the auto majors against Maruti in Indian Market If Maruti has to try and match the
features of new generation small cars it would mean additional costs On the contrary if Maruti decides to
hold its price line and add new features it could translate into losses or at least low profits But MUL can still
bank on at least two Suzuki models the proposed 657-cc Cervo C and the current 996-cc Wagon R to battle its
rivals in the future
Chapter 43 The Advent of the Auto Majors
Besides bracing up for losses in the initial years auto majors like Hyundai and Daewoo are banking on exports
too At the moment export may look unattractive because of the South Asian meltdown but in the long run low
production costs and component-manufacturing skills will make India- made cars competitive at global market
place Hence they are looking India as a production base to cater to the growing Asian market by way of
outsourcing from Indian manufacturing base However many a hurdles they have to cross on the journey to
profitability
26
The investments necessary for a large plant are simply huge Daewoo has so far sunk Rs 2700 crore in a
120-lakh-unit-a-year plant Unlike China which has restricted the number of companies India has followed an
open door policy for car manufacturers which has resulted in emergence of fragmented markets with distributed
capacity
An Original Equipment Manufacturer (OEM) needs a minimum economic size of 150 lakh cars a year to attract
vendor interest Daewoo was able to slash the Cielos price as it is cheaper to import components because of the
devaluation of the South Asian currencies The auto majors are lobbying with the government to ease the strict
indigenisation norms in the new automobile policy so that they can import the components from other countries
This will help them to cut the prices and to go head on the market leader particularly in a price responsive market
like that of small car segment
The other argument is that with the given import duty of 103 per cent on Completely Knocked-Down Kits
(CKDs) which is the same as that on Completely Built-up Units (CBUs) and 68 per cent on components the
imports will become costlier and compel companies to localize their manufacture The exposure to currency
fluctuations which crippled the four Japanese light commercial vehicle projects in the late 1980s is also minimal
when a company localizes component manufacture
Besides lean manufacturing techniques like Just-In-Time (JIT) are possible only when the supplier is located
close to the manufacturing unit If Maruti is a success story it is only because it indigenised 85 per cent of its
components within five years of going on-stream
Then theres the question of servicing the replacement market for spares Customers typically expect
components to be available locally and at competitive prices Imports cannot guarantee that but it is a
27
tremendous job to localize components at the right quality and price given the supplier problems in prevalent in
India
An Original Equipment Manufacturerrsquos competitive advantage lies in its marketing skills Having achieved price
and technology parity it can easily woo the consumer with attractive financing schemes and superior after-sales
service Nudged by the competition most auto players have a clutch of schemes to offer Daewoo Motors India
provides interestfree car finance Ford Motor and General Motors have slashed interest rates MULs joint
venture finance company Maruti Countrywide is offering loans at 1350 per cent when the prevailing lending
rate is 17 per cent and above
Chapter 44 The After Sales Service Scenario
After sales service for cars is as critical as showroom deals Maruti services its 2 million customers through an
army of 174 dealers spread across the country It will be impossible for a company to duplicate such
infrastructure particularly with investments in a metro-based showroom going up to Rs 4 crore Margins in
retailing are moving from actual sales to after sales service
The problem of price war is evident with Auto majors as much as with dealers In a bid to woo the customers
dealers particularly in non-prime locations are cutting their margins It will not be surprising if single-brand
dealers eventually turn into multi-brand sellers in future
Doing so will benefit all the three constituents in the marketing chain the OEM the dealer and the buyer The
carmaker can expand his reach without expensive investment the dealer can increase his revenue and the
customer gets a variety of models and brands under one roof in future
The local partner will be the loser in this fierce battle Without the means to make either matching equity or
technological investment the Indian collaborator will be driven off the road
28
It has already happened to the Rs 166-crore DCM which tied up with Daewoo Motors and can happen to both
the Rs 1258-crore Hindustan Motors (Partner General Motors) and the Rs 360657 crore Mahindra amp Mahindra
(Partner Ford Motor)
So they are reconciled to adopting a minority role or becoming auto component vendors This list includes
Siddharth Shrirams Rs 430-crore Siel (Partner Honda) the Kirloskars (Partner Toyota) and the Munjals of the
Rs 2000-crore Hero Group (Partner BMW) And the evidence is compelling eg Hindusthan Motors has a
passive role in its joint venture with General Motors although the Opel Astra is manufactured at HMs Halol plant
in Gujarat The same can be forecasted about Mahindra and Mahindrarsquos joint venture with Ford Motor What can
prolong the life of the joint venture is distribution muscle as it will take at least five years for a transnational auto
major to build a strong distribution channel in this country
By all accounts the auto industry is headed for a glut With an estimated demand for cars to touch 9 lakhs in
2001-2002 the installed capacity will rise to 16 lakhs So the current growth rate in Indian market is not
sustainable There will be at least two years of stagnant or declining demand before the resumption of the growth
trendThere is a projected demand of 1-lakh cars in the mid-segment alone by 2001-2002 And the car numbers
will add up to around 6 lakh a year That will engender a shakeout which is already afoot in the other Asian
markets For instance poor off -take and a consequent build-up of car inventories has led to a fierce price-war in
China
Chapter 45 Market Potential of Indian Automobile Segment
The demand for the small car will continue to drive growth for the next five years Of the total sales of Maruti in
2000-2001around 85 per cent were small cars The Esteems sales dropped in the same period where as the small
cars drove MULs sales So demand for small cars will leap only if certain conditions are fulfilled
29
Rise in the Income Levels In the US auto demand rises by 4 per cent for every 1 per cent increase in the real
Gross Domestic Product but this is irrelevant for India as only the top 150 per cent of the population
can afford a car The demand can shoot up if the income levels of the top 5 per cent continue to rise in future
Level Of Motorization It is stagnant at 170 cars per 1000 people for decades However in the post-liberalization
period the motorization level has leaped to 370 cars per 1000 Although it is still lower than the levels in the
developed markets motorization is bound to rise further in the coming years
Chapter 451 Vehicle Prices
Falling imports and excise duties coupled with competition will continue to boost demand and
the prices are likely to fall further at least in the short run
Chapter 452 Consumer Finance
Over 60 per cent of customers opt for consumer finance That figure could go up if interest
rates continue to fall
Chapter 453 Infrastructure
Traffic congestion and bad roads could deter potential buyers from going for small cars
particularly in small cities of India The future is not very heartening in this aspect
Chapter 454 Product Availability
As manufacturers shift their attention to the small car more and more people will be able to
afford it and demand will only rise in the future period of time
30
Chapter 46 The Future-Indian Automobile
There is a sharp contrast in the buying behavior of Indian Consumer compared to their western counter parts yet
there is no doubt that Indian car market is going to increasingly resemble the latter In the West the industry is
likely to be dominated by three or four major players With a likely demand of 11 lakh cars by 2006 there will be
a few niche players like BMW Mercedes-Benz and Audi with luxury cars to offer Unless car manufacturers
have a large range of vehicle to offer they will be unable to subsidize their costlier models
The market will consolidate to few segments The carmaker has to make diverse models based on diverse and
flexible platforms Products like the stripped-down economy car the sports utility vehicle or the van should be
built on the same platform For the price-sensitive customers there can be a no-frills version a loaded version for
the middle customer and luxury car manufacturers can target the high-end customers
The fortunes of the autoobile industry will continue to hinge on the large price sensitive customers who will
graduate to the higher end of the market over a period of time
Until then the small car will continue to drive demand and most of the car-manufacturers are
gearing up for this eventuality
31
Chapter 5 Company Profile
ldquoTata Motorsrdquo
32
CHAPTER 5 Company ProfileTata Motors
Tata Motors previously known as Tata Engineering and Locomotive Co Ltd (TELCO) is one of the largest
companies in the Tata Group and one of Indias largest business houses Tata Motors is Indias leading
commercial vehicle manufacturer and the third largest passenger car manufacturer The company is the sixth
largest truck manufacturer in the world Tata Motors recently received the Balanced Scorecard Collaborative Hall
of Fame Award for having achieved a significant turnaround of its overall performance A comprehensive quality
improvement and cost cutting initiative in September 2000 has played an important role in the companys
turnaround from a loss of Rs 500 crores in the year ended March 2001 to a profit of Rs 28 crores in the first
quarter of 2002-2003
Tata Engineering and Locomotive Company (TELCO)
Chapter 51 History amp Evolution
Tata Engineering and Locomotive Company Ltd popularly known as Telco was incorporated in 1945 to
manufacture steam locomotives In 1954 the company diversified into automobile manufacturing through a
collaboration with Daimler-Benz for the manufacture of commercial vehicles By the time the collaboration ended
in 1969 Telco had not only become an independent producer of medium commercial vehicles (MCVs) with
negligible import contentbut had developed the capability of designing and developing such vehicles The
Company progressively widened its product range to cover heavy commercial vehicles (HCVs) and light
commercial vehicles (LCVs) implementing one expansion program after another
To sustain the unrelenting pace of its growth Telco added machining press and assembly
33
capacities set up its own forge and foundries and virtually created the countryrsquos automobile ancillary industry
The Company even developed facilities for designing and manufacturing state-of-the-art machine tools material
handling equipment dies and fixtures To accommodate the Companyrsquos growing activity base a large modern
complex was set up at Pune in western India and a new plant became operational at Lucknow in the north of the
country
To provide a business focus for the Companyrsquos main activity areas Telco has created twobusiness unitsrsquo -
Automobiles and Construction Equipment ndash both of which have notched up record-breaking results
Telco today has a domestic market share of 68 in the MCVHCV segment 64 in the LCV segment and 32
in the multi-utility segment Apart from commercial vehicles which range from 1 ton to 35 tons GVW Telcorsquos
automobile products also include passenger vehicles and an extraordinarily popular multi-utility vehicle All these
products have been developed inhouse by the Companyrsquos own RampD Center This Center is equipped with the
latest computeraided design hardware and software enabling the company to respond quickly to changing
customer needs both in India and abroad
Telco has been exporting its products since 1969 and currently exports about a tenth of its
output Export markets include the Middle East Africa and Southeast Asia as well as
developed countries in Europe like France UK and Spain It is intended that exports should account for 20 of
the automobiles sold by the Company
Telcorsquos second line of business Construction Equipment has also grown rapidly and the
Company currently commands a 61 share in the excavator market and 90 in the crawler cranes market in
India The hydraulically operated construction equipment made by the company is in collaboration with Hitachi
34
Construction Machinery Limited of Japan There are ambitious plans for widening the range of excavators made
by the company and for adding new lines of construction equipment A recent addition to the excavator range is
Backhoe Loader
Telco is one of Indias largest private sector companies With a turnover of Rs 6637 billion it is the countrys
leading commercial vehicle manufacturer and the worldrsquos sixth largest automobile company
The widely successful Tata Indica which is Euro 1 and 2 compliant is the countryrsquos first
indigenously designed developed and manufactured passenger car The company also
makes several other passengers vehicles including the Safari the Sumo the Sierra the Tata Estate and the
Tatamobile pick-up
The companyrsquos products have received wide acceptance not only in India but also in markets in the Middle East
Asia Africa and Europe
Chapter 52 Areas of business
The company manufactures medium heavy and light commercial vehicles multi-utility
vehicles and passenger cars It also makes general and special purpose machines for
automotive applications at its machine tool division These include NCCNC horizontal and inline machining
centers flexible manufacturing systems CNC cylindrical grinding machines and robots for welding cutting
painting and other applications
In 1999 the companyrsquos revenues from its four manufacturing plants at three locations in India were Rs 6637
billion ($15735 million) In 1998 they were Rs 7026 billion ($1893 million) (The average exchange rate in
1999 was Rs 4218 to one US dollar)
35
In the year ended 31 March 2000 the companyrsquos total exports were worth about Rs 50553 crore against about
Rs 60078 crore in the previous year
Locations
The companyrsquos manufacturing plants in India are at Jamshedpur in Bihar Pimpri and
Chinchwad near Pune in Maharashtra and Lucknow in Uttar Pradesh A fifth manufacturing facility is being set
up at Dharwad in Karnataka
Collaborations
The Company has technical tie-ups with
bull The Institute of Development in Automotive Engineering SPA Italy for assistance in
small car body design and styling
bull Nachi Fujikoshi Corporation Japan for robots for welding painting and other
automotive applications
bull Le Moteur Moderne France for the development of diesel and petrol engines for
passenger cars and
bull Robert Bausch GmbH Germany for application work on the engine management
system for 4 PL petrol engines
36
Chapter 53 Tata Motors ndashSuccessful Car Indica
TELCO launched Indica when the TATA group was in red Telco chairman Ratan Tata said that the 1400 cc car
Indica would drive the company out of the red
Tata while talking to reporters at the IETF 99 in a videoconference from Mumbai said that the overwhelming
response of over 125 lakh initial bookings for the Indica had come as a surprise It seems we touched the
national chord somewhere as people responded to the fact that this is the first Indian car said Tata Indica is not
the end of the road for Telco when it comes to passenger cars It is just the beginning as there are more to come
said Tata adding that the company was working on another mid-size car after Indica
Telco had to produce 60000 cars a year to break-even The group created two
organizations within Telco one dealing with commercial vehicles and the other with passenger cars The
company under took a major restructuring exercise whereby the passenger car and commercial vehicles divisions
would function as two separate business units Telco had a strategy to go for exports after addressing the initial
requirements of the domestic market
Awards and Recognition
In May 2000 Tata Engineering and Locomotive Company Ltd (Telco) won a national award for successful
indigenous technology used in the Indica car project The award titled National award for successful
commercialization of indigenous technology by an industrial concern for indigenous development and
commercialization of Tata Indica car was presented by the minister for human resource development science and
technology and ocean development
Dr Murli Manohar Joshi
37
In November 1999 Telco was awarded the Department of scientific and industrial research
national award for indigenous design of the Tata Indica It was the first company in India to implement stringent
emission norms well ahead of the mandate dates
Promotions
The Indica advertising made interest for the car go into overdrive The campaign revolved around the premise that
the Indica would not just meet peoples expectations it would exceed them Every advertisement has a story to
tell
Pre launch Campaign
The Indica campaign began in the right earnest in December 1998 It was advertised as the launch of a car that
will spell doom for the small cars It was directly aimed at Maruti 800 The ad line used in the first campaign was
ldquoCar makers will suddenly remember all the thing they forgot to give yourdquo This hinted that Indica would have
more features than any of the existing small cars Indica used the catch lines like ldquo More car per Carrdquo ldquoMore
dreams per carrdquo to suggest that Indica will be bigger in size to the existing small cars yet be in the small car
category It competes with the mid size cars on size and give them a run for their money with its cheaper price
tag
At the launch of the car TELCO claimed that the people would never have to suffer from a small car again and
that the n end of the year (1998) would be the end of the small cars
Launch Campaign
The launch campaign of Indica focussed on the many advantages that it offered over other cars in the same
segment It promised the customers more than the current offerings Its first advertisement carried the following
catch line ldquo50cc moped 100cc bike 800cc car Time you asked for morerdquo
38
It then concentrated its efforts on criticizing the negative aspects of Maruti 800 and highlighted how Indica has
removed those very defects and presented a very sophisticated and modern car to the Indian customer It even
pointed out that the shape of Maruti was very unconventional and that people would prefer the shape of Indica to
Maruti 800 The advertisement read ldquo Box shaped bubble shaped wedge shaped But then Gentlemen prefer
curvesrdquo
The launch campaign also focussed on the roomy interiors of Indica a feature not offered by Maruti at that point
of time Also the expertise of TATA in diesel engines and fuel efficiency of these were the highlight of the launch
campaign of Tata Indica
Post Launch Campaigns
While the Launch campaign focussed on the features of Indica the post launch advertisements focussed on the
superior after sales service and longer warranty periods offered by Indica
Telco was the first company to offer an 18-month warranty period on engine parts The most famous line used
during this campaign was ldquoWe could go on and on about service or give you the one word summary TATArdquo
While their main adversary was the Maruti 800 Telco felt that it could also tap the mid size segment using the
selling point of space given by Indica They carried a campaign which said ldquoForget small cars we even make big
cars feel smallrdquo
It then went on to highlight the fact that Indica was Euro II compliant even before it was legally binding upon car
manufacturers to do so It also highlighted the concrete wall safety test that Indica withstands and tried to
showcase the car as a safe and strong car
39
Chapter 6 COST REDUCTION TECHNIQUES
IN TATA MOTORSrsquoS INDICA
40
Chapter 6 Tata Indica - The Making Of The Small Car
with objective of minimizing costs
The research provides an understanding of the issues concerning the supply chain management system at
Telco in regard to its small car Indica It outlines how Telco built the supply chain for the car by leveraging its
existing competencies and how it transformed itself from an integrated truck manufacturer to an automobile
integrator and from a product-centric company to competence- centric company The case discusses various
components of the supply chain and emphasises how Telco orchestrated them with the objective of minimizing
costs
ldquoTelcorsquos 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 comerdquo
- Business India March 22 1999
In the early 1990s Telcorsquos Chairman Ratan Tata (Tata) was flirting with the idea of developing a small
car By mid-1994 a rudimentary design was in place In 1995 Telco announced that it planned to build a car
which would be priced close to the Maruti 800 shaped like the Zen and spacious as an Ambassador
Producing the new small car ndash Indica ndash represented a different kind of challenge for Telco Should Tata succeed he
would change the face of Telco As a truck-maker Telco was so integrated that it even made it own castings and
forgings As an automaker it would have to focus on the value chain that stretched between raw materials and after-sales
41
service as well as assembling the parts into the complete automobile
For its new venture Telco outsourced 80 of the components (1200 of its 1500-plus parts) from 200-odd vendors To
develop the Indica Telco had to combine the learnings from its predecessors with its own unique supply chain
management strategies to ensure a sustainable low-cost platform
By learning to build and manage a supply chain it would set the ground for leveraging the capabilities of the
automotive component-manufacturers who already operated in its target markets In other words Telco planned
to use its skills as an integrator--bringing together products and services from both upstream and downstream
operations and packaging them for the customer under a brand name in its new venture
Globally a car could be built in 48 months with an investment of US $ 3 billion (Rs 1275 billion) Indica was
built in 31 months on a budget of Rs 17 billion This seemed to have been possible by focussing on the supply
chain
Chapter 61 THE OUTSOURCING STRATEGY
For Telco outsourcing seemed to be one of the most difficult aspects of producing the Indica Unlike global
automobile majors Ford Motors or General Motors which had a global vendor-base that could be replicated on
a smaller scale in India Telco had to create a vendor-base from scratch Moreover it did not have the expertise
either to design a car or to build an engine for it
Against this background Telco had to take its primary lsquomake-or-buyrsquo decisions for the key inputs-design
engine and transmission Telco decided to shop globally for the best deals and use its own expertise to make
42
whatever modifications were needed
(Refer Table I for the components outsourced by Telco)
TABLE I
OUTSOURCING THE COMPONENTS
Components Supplier
5 door hatchback IDEA Italy
Engine Institut Francais du Petrol
France
Assembly Line Nissanrsquos Plant Australia
Presses Mercedes Benz
Pistons and Piston rings India Pistons
Electrical components and fuel injection
systems Lucas-TVS
Steering systems Rane TRW Steering Systems
Clutch facings and rear (drum) brake linings Sundaram Brake Linings (SBL)
Seating Systems Tata-Johnson Controls
Radiators Tata-Toyo
Rear view mirrors Tata-Ficosa
Front and rear bumper dash-board inside
trims Tata-Auto Plastics
Air conditioning kits Subros Ltd
Wind screens and windows Asahi Glass
Fuel lines Imperial Auto
Differential assemblies Sona Steering
43
Sheet metal items JBM Tools
Source Business Today March 22 1999 and December 7 1999
Telco turned to the Italian company IDEA for the product-design It bought the engine from the Institut
Francais du Petrol of France and applied its engineering skills to adapt the engine requirements The transmission
was developed in-house at its Engineering Research Centre (ERC) at Pune Of the Rs 25 billion it spent on
designing the Indica the major share went in buying design tools and training its engineers in new skills Telcorsquos
engineers traveled regularly to the sites of its technology suppliers to receive training before the actual delivery
of the machines
Telco also outsourced its assembly line from Nissanrsquos plant in Australia for just Rs 900 million Telco
transplanted it at its factory at Chikli near Pune which was newly set up for Indica A new assembly line of the
same proportions would have cost at least Rs 4 billion Again of the 3 presses for the Indica only 1 was new
acquired for Rs 900 million while the other 2 were bought second-hand from Mercedes-Benz and modified to
suit the Indica
Telcorsquos engineers and the ERC did the application engineering programming installation and commissioning to
save around 45 of the technology costs The tooling for the car too was supplied internally by Telcorsquos machine
tool division To manage the supply chain better Telco kept the number of suppliers for Indica to just 200 as
compared to about 1000 for trucks Most of the parts were supplied by Telcorsquos traditional suppliersmdash TVS Rane
Group and Tata Auto Component Systems (Taco) who were single source suppliers Pressed parts assemblies
and drive shafts were sourced from single vendors
44
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
CHAPTER 3 CRITICAL REVIEW OF LITERATURE
A just released customer research study titled Customers Say What Companies Dont Want to Hear throws a
bucket of ice water in the face of some core business management tenets mdash plus a number of keystone principles
of the marketing advertising and customer relationship management (CRM) industries
Greenberg adds Customers Say What Companies Dont Want To Hear proves a mission-critical strategic point
Businesses need to rethink their logic and develop new operating models based on customer centric behaviors and
valuations
Commenting on the findings Paul Greenberg author of the industry best-seller CRM at the Speed of Light
Customer Strategies for the 21st Century says Lee and Mangen have verified and amplified with hard data
the growing perception that the new breed of customer is here to stay and businesses need to react mdash or risk their
very existence
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 While a top manager should be the ideal customer he
should also be the greatest critic of his companys products If the CEO compromises or is only looking at the
margins then even if he is successful the companys success will be short lived
- Ratan Tata the Chairman Tata Group
16
Chapter 31 Automobile Market Overview
The domestic automobile market has been growing at 142 per cent CAGR over the past 4 years (2000-01 to
2004-05) while the auto components market has been growing at 192 per cent CAGR (2000-01 to 2003-04) The
industry (OEMs and suppliers together) contributed nearly 4 per cent to the countryrsquos GDP in 2003-04 The
automotive sector also offers significant employment opportunities It employs 045 million people directly and
around 10 million people indirectly
The industryrsquos capabilities in design engineering and manufacturing have been recognised the world over and
most automotive majors are looking to increasingly source auto components from India
India is emerging as one of the most attractive automotive markets in the world and is poised to become a key
sourcing base for auto components The table below captures the highlights of the sector in India that illustrates
its growing significanceSee Annexure A amp B
Indian Automobile Industry
Largest three wheeler market in the world
2nd largest two wheeler market in the world
4th largest passenger vehicle market in Asia
4th largest tractor market in the world
5th largest commercial vehicle market in the world
17
Chapter 32 Automobiles - Domestic Performance
The production and domestic sales of the automobiles in India have been growing strongly While production
increased from 48 million units in 2000-1 to 85 million units in 2004-05 (a CAGR of over 15 per cent) domestic
sales during the same period have gone up from 46 million to 79 million units (CAGR 142 per cent) A positive
trend in the domestic market is that the growth has not been driven by one or two segments but is consistent
across all key segments Two wheelers which constitute the majority of the industry volume have been growing
at a rate of 143 per cent three wheelers at a rate of 14 per cent and passenger vehicles at a rate of 113 per cent
Commercial vehicles have been growing at a higher rate of nearly 235 per cent although from a lower base
Since nearly all macro-economic indicators ndash GDP infrastructure population demographics interest rates etc ndash
are showing a favourable trend the domestic market for automobiles in India is expected to continue on its
growth trajectory
Chapter 33 Exports of automobiles from India
While the domestic sales of automobiles have been increasing at a significant rate exports have taken a quantum
leap in recent years The exports of automobiles from India have been growing at a CAGR of 39 per cent for the
past four years Exports growth has been spearheaded by the passenger vehicle segment which has grown at a
rate of 574 per cent
As a result the share of passenger vehicles in overall vehicle exports has increased from 18 per cent in 1998-99 to
26 per cent in 2004-05 Europe is the biggest importer of cars from the country while predominantly African
nations import buses and trucks The Association of South East Asian Nations (ASEAN) region is
the prime destination for Indian two wheelers
18
Chapter 34 REVIEW OF THESIS DONE
This is easy to understand because the per capita disposable income of the people has gone up remarkably Over
the last five years per capita personal disposable income has gone up by around 8 which has increased
purchasing capacity of the people in the country Other factors have also contributed to this high growth in Indian
automobile sector These include lowering age of first car users shorter replacement cycles rising duel income
families nw technology which is lowering cost of ownership low car penetration in the country and most
importantly growing steel production in the country In addition wide variety and easily available financing
options are also some of the major reasons for surge in demand for automobiles in India
Global automobile manufacturers are consistently streamlining their business process by outsourcing their non-
core activities to low-cost countries like IndiaGlobal automobile manufacturers are under tremendous pressures
to innovate their manufacturing process and at the same time to reduce costs In view of the present global
competitiveness they must not only develop new features to strengthen their customer requirements but also
follow the environmental and safety standards In addition the base price of a car is expected to remain same over
the next decade As a result companies are forced to source more components from low-cost countries like India
According to Mckinsey global outsourcing of automobile and auto components would reach US$375 billion by
2015 from US$65 billion in 2002 India has plenty of scope to garner this potential According to the management
consulting firm India has the potential to notch this opportunity and reach up to US$25 billion to emerge as
major sourcing destinations along with China Mexico and Thailand Besides low cost Indias auto components
industry has the major advantage of enormous skills in process product and capital engineeringmdashits excellent
manufacturing history and good education system
19
Human beings think our way is the best but at Toyota we are told we have to always change We believe there is
no perfect way so we continue to search The goal is to break the current condition through Kaizen
- Shoichiro Toyoda Chairman Toyota Motor Corporation in December 2000
When Kaizen is applied to the workplace it means continuous improvement for - managers and workers Thus
Kaizen involves everyone in an organization to make improvements without large capital investments It can be
seen as a culture of continuous sustained improvement focusing on eliminating waste in all systems and
processes The Kaizen strategy begins and ends with people With Kaizen an involved leadership guides people
continuously to improve their abilities to meet high quality expectations low cost and on-time delivery which in
turn helps the organization gain a competitive edge
The production divisions council which checked the plants objectives occasionally modifying them taking into
account the companys profit targets replaced the production allowance councils After approval these objectives
became the Kaizen norm of each plant in terms of production efficiency The method of determining the
production efficiency was altered to make it less constrained as the standard time was fixed by measuring the time
really required for workers operations whereas earlier standard time was fixed on the basis of the best standard
time marked in the past
20
Chapter 4 Industry Profile
21
CHAPTER 4 Industry Profile
The Trans-nationals were also serious about developing vendors in India India is
bound to become an important destination for the global auto industry It took the financial turmoil in South East
Asia and the slowdown in the Chinese auto market to reinforce the targeting to Indian Market The new interest in
the small car segment also reflects certain amount of bullishness on the part of auto manufacturers about India
Despite projected over capacities--and current losses carmakers continued to queue
up their investments for small car segment To day there are 10 global auto majorsmdashincluding the $13-billion
Suzuki Motor (Japan) the $65-billion Daewoo (South Korea) the $147-billion Ford (US) the $47-billion Fiat
(Italy) and the $168-billion General Motors (US) operating in Indian Market
Chapter 41 The Pre 1997 Automobile Market
As late as 1997 the auto market in India was clearly segmented At the entry level
were MULs 800-cc car--priced between Rs 210-lakh and Rs 245 lakh--and the Omni at Rs 175 lakh At the
next level were the 993-cc Zen--priced at Rs 370 lakh--and the 999-cc Fiat Uno (Rs 362 lakh) Then came the
1300-cc Esteem models--priced between Rs 469 lakh and Rs 595 lakh--the 1498-cc Cielo (Rs 620 lakh) and
the 1598-cc Opel Astra (Rs 752 lakh) followed by premium cars like Mercedes-Benzs E-220 (Rs 22 lakh)
Changing Lanes
Two events have upset the equations in the price-segmented car market Daewoo has
Changed the lanes with the Cielo which is now priced at Rs 490 lakh and competes with the Zens top-end
model (Rs 440 lakh) and the Esteems lower-end version (Rs 469 lakh) Ceilo has created a new value segment
where the price is not proportionate to the size Daewoos strategic response has very clearly redefined
differentiation from price or size to value
22
Hyundai Motors India a subsidiary of the $27-billion Hyundai of South Korea launched
its 999-cc Santro at the Auto Expo 1998 in Delhi The model comes in five variants with the non-air-
conditioned manual transmission model priced at Rs 280 lakh and the semiautomatic air-conditioned GLS
model priced between Rs 315 lakh and Rs 4 lakh ClearlyHyundais strategy is aimed at taking on the market
leader Maruti Udyog Limited But by pricing the deluxe model at Rs 4 lakh it is also bridging the gap between
the small and the middle car segments At present Marutirsquos Esteem LX is priced Rs 70000 more than the
Santro GLS while the Cielo is priced Rs 90000 more
The further entry of new players will only blur the segments New entrants will be
involved in price war to find a foothold in the Indian market Few of the examples include
TELCOs positioning of its 1400-cc Indica car--launched in November 1998 and priced close to Marutirsquos 800-cc
model as a small carand Honda sneaking its 1300-cc City into the segment vacated by the Cielo although it is
an accepted fact that pricing or positioning cannot be done in isolation In a crowded market that must depend on
the available strategic opportunities
By creating new segments companies can broaden their market base increase
capacity utilization levels pre-empt competitors market entry moves and importantly lower costs While Maruti
did that by launching three versions of the Esteem TELCO accomplished it by using a common platform for the
Sumo the Estate and the Sierra models Hyundai is also planning to come to the market with five variants in near
future At high volumes costs can be lowered by more than 20 per cent across variants due to experience curve
effect
Configuring the sticker price for a car in the market today is no more a functional
decision It has become a strategic decision as it identifies the key segmentrsquos response
23
elasticity to the market offer The two key inhibiting factors for the poor response to the auto war fare in Indian
Car Market are basically the low per capita income at $350 (Rs 14000 at current prices) and the high
manufacturing costs A large part of the population expected to graduate from two wheelers to four wheelers has
not responded as they were supposed to during this period of time The domestic auto giant Maruti Udyog
limited still forces the new players to benchmark themselves against its products which roll out from a
depreciated yet high-volume plant It enjoys the fast mover as well as the cost advantage with the higher capacity
utilisation that helps him to cut costs across as more cars you make the cheaper they get
With the worldrsquos second largest and fastest-growing population there is no doubt that Indiarsquos potential in both
economic and population terms and the effect it will have on the auto industry in the next years During the last
two years export from this sector has grown significantly owing mainly to the export of cars and two-three-
wheelers
The industry is characterized by a very high percentage (75) of production in the 23 wheeler sector India ranks
as the largest manufacturer of motorcycles and second largest in manufacturing of scooters in the world India
today is also the second largest manufacturer of tractors as well The industry has intense forward and backward
integration
The Indian automotive industry had experienced an extraordinary growth due to the improvement in the living
standards of the middle class and an increase in their disposable incomes Moreover the liberalization steps such
as relaxation of the foreign exchange and equity regulations reduction of tariffs on imports and refining the
banking policies initiated by the Government of India have played an equally important role in bringing the
Indian Automotive industry to great heights
It is estimated that the sale of passenger cars have tripled compared to their sale in the last five years Thus the
sale of cars has reached a figure of 1 million users and is expected to increase further Its also to be noted that the
24
demand for luxurious models SUVs and mini-cars for family owners have shot up largely due to increase in the
consumers buying capacity
The Indian automotive market
India country fact file 2005
Population 1 080 264388
Per Capita GDP (PPP) $3400
GDP Growth Rate 71
Total automotive sales 2005 1 439604 (889333)
Total automotive production 2005 1 643460 (1 000567)
Market growth 2005 vs 2004 70 (64)
Best sold model PC segment 2004 Maruti Alto (168)
Best sold model LCV segment 2004 Maruti Omni (213)
(passenger cars) (market share in segment)
Source httpwwwsegmentycomIndiahtm
Chapter 42 The Protected Indian Domestic Automobile Sector
MUL which set up shop in 1984 had 10 long years of relative protection to emerge as a formidable competitor
with high volume and a strong brand image in the mind of Indian customers When the industry was deregulated
in 1993 the cost barrier had become so high that new companies could not dare to look at the small car segment
25
Instead they settled for the mid-size segment where both volumes and margins were expected to be high
However a shakeout in the Indian mid-size car segment the slowdown in international auto sales pushed
transnational auto majors into India which have now turned the tide against MULThe present generation small
cars launched recently are more contemporary in terms of both design and technology while Marutis small-car
technology is at least a decade old
Keeping the future growth potential of Indian market in mind the auto majors are prepared to bear losses for the
next 10 years This will help them to gain a good market share the long run and provide breathing space to
counter the strategic moves of the leader Hence the narrowing price differential between the old and the new
small cars is the first call of the auto majors against Maruti in Indian Market If Maruti has to try and match the
features of new generation small cars it would mean additional costs On the contrary if Maruti decides to
hold its price line and add new features it could translate into losses or at least low profits But MUL can still
bank on at least two Suzuki models the proposed 657-cc Cervo C and the current 996-cc Wagon R to battle its
rivals in the future
Chapter 43 The Advent of the Auto Majors
Besides bracing up for losses in the initial years auto majors like Hyundai and Daewoo are banking on exports
too At the moment export may look unattractive because of the South Asian meltdown but in the long run low
production costs and component-manufacturing skills will make India- made cars competitive at global market
place Hence they are looking India as a production base to cater to the growing Asian market by way of
outsourcing from Indian manufacturing base However many a hurdles they have to cross on the journey to
profitability
26
The investments necessary for a large plant are simply huge Daewoo has so far sunk Rs 2700 crore in a
120-lakh-unit-a-year plant Unlike China which has restricted the number of companies India has followed an
open door policy for car manufacturers which has resulted in emergence of fragmented markets with distributed
capacity
An Original Equipment Manufacturer (OEM) needs a minimum economic size of 150 lakh cars a year to attract
vendor interest Daewoo was able to slash the Cielos price as it is cheaper to import components because of the
devaluation of the South Asian currencies The auto majors are lobbying with the government to ease the strict
indigenisation norms in the new automobile policy so that they can import the components from other countries
This will help them to cut the prices and to go head on the market leader particularly in a price responsive market
like that of small car segment
The other argument is that with the given import duty of 103 per cent on Completely Knocked-Down Kits
(CKDs) which is the same as that on Completely Built-up Units (CBUs) and 68 per cent on components the
imports will become costlier and compel companies to localize their manufacture The exposure to currency
fluctuations which crippled the four Japanese light commercial vehicle projects in the late 1980s is also minimal
when a company localizes component manufacture
Besides lean manufacturing techniques like Just-In-Time (JIT) are possible only when the supplier is located
close to the manufacturing unit If Maruti is a success story it is only because it indigenised 85 per cent of its
components within five years of going on-stream
Then theres the question of servicing the replacement market for spares Customers typically expect
components to be available locally and at competitive prices Imports cannot guarantee that but it is a
27
tremendous job to localize components at the right quality and price given the supplier problems in prevalent in
India
An Original Equipment Manufacturerrsquos competitive advantage lies in its marketing skills Having achieved price
and technology parity it can easily woo the consumer with attractive financing schemes and superior after-sales
service Nudged by the competition most auto players have a clutch of schemes to offer Daewoo Motors India
provides interestfree car finance Ford Motor and General Motors have slashed interest rates MULs joint
venture finance company Maruti Countrywide is offering loans at 1350 per cent when the prevailing lending
rate is 17 per cent and above
Chapter 44 The After Sales Service Scenario
After sales service for cars is as critical as showroom deals Maruti services its 2 million customers through an
army of 174 dealers spread across the country It will be impossible for a company to duplicate such
infrastructure particularly with investments in a metro-based showroom going up to Rs 4 crore Margins in
retailing are moving from actual sales to after sales service
The problem of price war is evident with Auto majors as much as with dealers In a bid to woo the customers
dealers particularly in non-prime locations are cutting their margins It will not be surprising if single-brand
dealers eventually turn into multi-brand sellers in future
Doing so will benefit all the three constituents in the marketing chain the OEM the dealer and the buyer The
carmaker can expand his reach without expensive investment the dealer can increase his revenue and the
customer gets a variety of models and brands under one roof in future
The local partner will be the loser in this fierce battle Without the means to make either matching equity or
technological investment the Indian collaborator will be driven off the road
28
It has already happened to the Rs 166-crore DCM which tied up with Daewoo Motors and can happen to both
the Rs 1258-crore Hindustan Motors (Partner General Motors) and the Rs 360657 crore Mahindra amp Mahindra
(Partner Ford Motor)
So they are reconciled to adopting a minority role or becoming auto component vendors This list includes
Siddharth Shrirams Rs 430-crore Siel (Partner Honda) the Kirloskars (Partner Toyota) and the Munjals of the
Rs 2000-crore Hero Group (Partner BMW) And the evidence is compelling eg Hindusthan Motors has a
passive role in its joint venture with General Motors although the Opel Astra is manufactured at HMs Halol plant
in Gujarat The same can be forecasted about Mahindra and Mahindrarsquos joint venture with Ford Motor What can
prolong the life of the joint venture is distribution muscle as it will take at least five years for a transnational auto
major to build a strong distribution channel in this country
By all accounts the auto industry is headed for a glut With an estimated demand for cars to touch 9 lakhs in
2001-2002 the installed capacity will rise to 16 lakhs So the current growth rate in Indian market is not
sustainable There will be at least two years of stagnant or declining demand before the resumption of the growth
trendThere is a projected demand of 1-lakh cars in the mid-segment alone by 2001-2002 And the car numbers
will add up to around 6 lakh a year That will engender a shakeout which is already afoot in the other Asian
markets For instance poor off -take and a consequent build-up of car inventories has led to a fierce price-war in
China
Chapter 45 Market Potential of Indian Automobile Segment
The demand for the small car will continue to drive growth for the next five years Of the total sales of Maruti in
2000-2001around 85 per cent were small cars The Esteems sales dropped in the same period where as the small
cars drove MULs sales So demand for small cars will leap only if certain conditions are fulfilled
29
Rise in the Income Levels In the US auto demand rises by 4 per cent for every 1 per cent increase in the real
Gross Domestic Product but this is irrelevant for India as only the top 150 per cent of the population
can afford a car The demand can shoot up if the income levels of the top 5 per cent continue to rise in future
Level Of Motorization It is stagnant at 170 cars per 1000 people for decades However in the post-liberalization
period the motorization level has leaped to 370 cars per 1000 Although it is still lower than the levels in the
developed markets motorization is bound to rise further in the coming years
Chapter 451 Vehicle Prices
Falling imports and excise duties coupled with competition will continue to boost demand and
the prices are likely to fall further at least in the short run
Chapter 452 Consumer Finance
Over 60 per cent of customers opt for consumer finance That figure could go up if interest
rates continue to fall
Chapter 453 Infrastructure
Traffic congestion and bad roads could deter potential buyers from going for small cars
particularly in small cities of India The future is not very heartening in this aspect
Chapter 454 Product Availability
As manufacturers shift their attention to the small car more and more people will be able to
afford it and demand will only rise in the future period of time
30
Chapter 46 The Future-Indian Automobile
There is a sharp contrast in the buying behavior of Indian Consumer compared to their western counter parts yet
there is no doubt that Indian car market is going to increasingly resemble the latter In the West the industry is
likely to be dominated by three or four major players With a likely demand of 11 lakh cars by 2006 there will be
a few niche players like BMW Mercedes-Benz and Audi with luxury cars to offer Unless car manufacturers
have a large range of vehicle to offer they will be unable to subsidize their costlier models
The market will consolidate to few segments The carmaker has to make diverse models based on diverse and
flexible platforms Products like the stripped-down economy car the sports utility vehicle or the van should be
built on the same platform For the price-sensitive customers there can be a no-frills version a loaded version for
the middle customer and luxury car manufacturers can target the high-end customers
The fortunes of the autoobile industry will continue to hinge on the large price sensitive customers who will
graduate to the higher end of the market over a period of time
Until then the small car will continue to drive demand and most of the car-manufacturers are
gearing up for this eventuality
31
Chapter 5 Company Profile
ldquoTata Motorsrdquo
32
CHAPTER 5 Company ProfileTata Motors
Tata Motors previously known as Tata Engineering and Locomotive Co Ltd (TELCO) is one of the largest
companies in the Tata Group and one of Indias largest business houses Tata Motors is Indias leading
commercial vehicle manufacturer and the third largest passenger car manufacturer The company is the sixth
largest truck manufacturer in the world Tata Motors recently received the Balanced Scorecard Collaborative Hall
of Fame Award for having achieved a significant turnaround of its overall performance A comprehensive quality
improvement and cost cutting initiative in September 2000 has played an important role in the companys
turnaround from a loss of Rs 500 crores in the year ended March 2001 to a profit of Rs 28 crores in the first
quarter of 2002-2003
Tata Engineering and Locomotive Company (TELCO)
Chapter 51 History amp Evolution
Tata Engineering and Locomotive Company Ltd popularly known as Telco was incorporated in 1945 to
manufacture steam locomotives In 1954 the company diversified into automobile manufacturing through a
collaboration with Daimler-Benz for the manufacture of commercial vehicles By the time the collaboration ended
in 1969 Telco had not only become an independent producer of medium commercial vehicles (MCVs) with
negligible import contentbut had developed the capability of designing and developing such vehicles The
Company progressively widened its product range to cover heavy commercial vehicles (HCVs) and light
commercial vehicles (LCVs) implementing one expansion program after another
To sustain the unrelenting pace of its growth Telco added machining press and assembly
33
capacities set up its own forge and foundries and virtually created the countryrsquos automobile ancillary industry
The Company even developed facilities for designing and manufacturing state-of-the-art machine tools material
handling equipment dies and fixtures To accommodate the Companyrsquos growing activity base a large modern
complex was set up at Pune in western India and a new plant became operational at Lucknow in the north of the
country
To provide a business focus for the Companyrsquos main activity areas Telco has created twobusiness unitsrsquo -
Automobiles and Construction Equipment ndash both of which have notched up record-breaking results
Telco today has a domestic market share of 68 in the MCVHCV segment 64 in the LCV segment and 32
in the multi-utility segment Apart from commercial vehicles which range from 1 ton to 35 tons GVW Telcorsquos
automobile products also include passenger vehicles and an extraordinarily popular multi-utility vehicle All these
products have been developed inhouse by the Companyrsquos own RampD Center This Center is equipped with the
latest computeraided design hardware and software enabling the company to respond quickly to changing
customer needs both in India and abroad
Telco has been exporting its products since 1969 and currently exports about a tenth of its
output Export markets include the Middle East Africa and Southeast Asia as well as
developed countries in Europe like France UK and Spain It is intended that exports should account for 20 of
the automobiles sold by the Company
Telcorsquos second line of business Construction Equipment has also grown rapidly and the
Company currently commands a 61 share in the excavator market and 90 in the crawler cranes market in
India The hydraulically operated construction equipment made by the company is in collaboration with Hitachi
34
Construction Machinery Limited of Japan There are ambitious plans for widening the range of excavators made
by the company and for adding new lines of construction equipment A recent addition to the excavator range is
Backhoe Loader
Telco is one of Indias largest private sector companies With a turnover of Rs 6637 billion it is the countrys
leading commercial vehicle manufacturer and the worldrsquos sixth largest automobile company
The widely successful Tata Indica which is Euro 1 and 2 compliant is the countryrsquos first
indigenously designed developed and manufactured passenger car The company also
makes several other passengers vehicles including the Safari the Sumo the Sierra the Tata Estate and the
Tatamobile pick-up
The companyrsquos products have received wide acceptance not only in India but also in markets in the Middle East
Asia Africa and Europe
Chapter 52 Areas of business
The company manufactures medium heavy and light commercial vehicles multi-utility
vehicles and passenger cars It also makes general and special purpose machines for
automotive applications at its machine tool division These include NCCNC horizontal and inline machining
centers flexible manufacturing systems CNC cylindrical grinding machines and robots for welding cutting
painting and other applications
In 1999 the companyrsquos revenues from its four manufacturing plants at three locations in India were Rs 6637
billion ($15735 million) In 1998 they were Rs 7026 billion ($1893 million) (The average exchange rate in
1999 was Rs 4218 to one US dollar)
35
In the year ended 31 March 2000 the companyrsquos total exports were worth about Rs 50553 crore against about
Rs 60078 crore in the previous year
Locations
The companyrsquos manufacturing plants in India are at Jamshedpur in Bihar Pimpri and
Chinchwad near Pune in Maharashtra and Lucknow in Uttar Pradesh A fifth manufacturing facility is being set
up at Dharwad in Karnataka
Collaborations
The Company has technical tie-ups with
bull The Institute of Development in Automotive Engineering SPA Italy for assistance in
small car body design and styling
bull Nachi Fujikoshi Corporation Japan for robots for welding painting and other
automotive applications
bull Le Moteur Moderne France for the development of diesel and petrol engines for
passenger cars and
bull Robert Bausch GmbH Germany for application work on the engine management
system for 4 PL petrol engines
36
Chapter 53 Tata Motors ndashSuccessful Car Indica
TELCO launched Indica when the TATA group was in red Telco chairman Ratan Tata said that the 1400 cc car
Indica would drive the company out of the red
Tata while talking to reporters at the IETF 99 in a videoconference from Mumbai said that the overwhelming
response of over 125 lakh initial bookings for the Indica had come as a surprise It seems we touched the
national chord somewhere as people responded to the fact that this is the first Indian car said Tata Indica is not
the end of the road for Telco when it comes to passenger cars It is just the beginning as there are more to come
said Tata adding that the company was working on another mid-size car after Indica
Telco had to produce 60000 cars a year to break-even The group created two
organizations within Telco one dealing with commercial vehicles and the other with passenger cars The
company under took a major restructuring exercise whereby the passenger car and commercial vehicles divisions
would function as two separate business units Telco had a strategy to go for exports after addressing the initial
requirements of the domestic market
Awards and Recognition
In May 2000 Tata Engineering and Locomotive Company Ltd (Telco) won a national award for successful
indigenous technology used in the Indica car project The award titled National award for successful
commercialization of indigenous technology by an industrial concern for indigenous development and
commercialization of Tata Indica car was presented by the minister for human resource development science and
technology and ocean development
Dr Murli Manohar Joshi
37
In November 1999 Telco was awarded the Department of scientific and industrial research
national award for indigenous design of the Tata Indica It was the first company in India to implement stringent
emission norms well ahead of the mandate dates
Promotions
The Indica advertising made interest for the car go into overdrive The campaign revolved around the premise that
the Indica would not just meet peoples expectations it would exceed them Every advertisement has a story to
tell
Pre launch Campaign
The Indica campaign began in the right earnest in December 1998 It was advertised as the launch of a car that
will spell doom for the small cars It was directly aimed at Maruti 800 The ad line used in the first campaign was
ldquoCar makers will suddenly remember all the thing they forgot to give yourdquo This hinted that Indica would have
more features than any of the existing small cars Indica used the catch lines like ldquo More car per Carrdquo ldquoMore
dreams per carrdquo to suggest that Indica will be bigger in size to the existing small cars yet be in the small car
category It competes with the mid size cars on size and give them a run for their money with its cheaper price
tag
At the launch of the car TELCO claimed that the people would never have to suffer from a small car again and
that the n end of the year (1998) would be the end of the small cars
Launch Campaign
The launch campaign of Indica focussed on the many advantages that it offered over other cars in the same
segment It promised the customers more than the current offerings Its first advertisement carried the following
catch line ldquo50cc moped 100cc bike 800cc car Time you asked for morerdquo
38
It then concentrated its efforts on criticizing the negative aspects of Maruti 800 and highlighted how Indica has
removed those very defects and presented a very sophisticated and modern car to the Indian customer It even
pointed out that the shape of Maruti was very unconventional and that people would prefer the shape of Indica to
Maruti 800 The advertisement read ldquo Box shaped bubble shaped wedge shaped But then Gentlemen prefer
curvesrdquo
The launch campaign also focussed on the roomy interiors of Indica a feature not offered by Maruti at that point
of time Also the expertise of TATA in diesel engines and fuel efficiency of these were the highlight of the launch
campaign of Tata Indica
Post Launch Campaigns
While the Launch campaign focussed on the features of Indica the post launch advertisements focussed on the
superior after sales service and longer warranty periods offered by Indica
Telco was the first company to offer an 18-month warranty period on engine parts The most famous line used
during this campaign was ldquoWe could go on and on about service or give you the one word summary TATArdquo
While their main adversary was the Maruti 800 Telco felt that it could also tap the mid size segment using the
selling point of space given by Indica They carried a campaign which said ldquoForget small cars we even make big
cars feel smallrdquo
It then went on to highlight the fact that Indica was Euro II compliant even before it was legally binding upon car
manufacturers to do so It also highlighted the concrete wall safety test that Indica withstands and tried to
showcase the car as a safe and strong car
39
Chapter 6 COST REDUCTION TECHNIQUES
IN TATA MOTORSrsquoS INDICA
40
Chapter 6 Tata Indica - The Making Of The Small Car
with objective of minimizing costs
The research provides an understanding of the issues concerning the supply chain management system at
Telco in regard to its small car Indica It outlines how Telco built the supply chain for the car by leveraging its
existing competencies and how it transformed itself from an integrated truck manufacturer to an automobile
integrator and from a product-centric company to competence- centric company The case discusses various
components of the supply chain and emphasises how Telco orchestrated them with the objective of minimizing
costs
ldquoTelcorsquos 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 comerdquo
- Business India March 22 1999
In the early 1990s Telcorsquos Chairman Ratan Tata (Tata) was flirting with the idea of developing a small
car By mid-1994 a rudimentary design was in place In 1995 Telco announced that it planned to build a car
which would be priced close to the Maruti 800 shaped like the Zen and spacious as an Ambassador
Producing the new small car ndash Indica ndash represented a different kind of challenge for Telco Should Tata succeed he
would change the face of Telco As a truck-maker Telco was so integrated that it even made it own castings and
forgings As an automaker it would have to focus on the value chain that stretched between raw materials and after-sales
41
service as well as assembling the parts into the complete automobile
For its new venture Telco outsourced 80 of the components (1200 of its 1500-plus parts) from 200-odd vendors To
develop the Indica Telco had to combine the learnings from its predecessors with its own unique supply chain
management strategies to ensure a sustainable low-cost platform
By learning to build and manage a supply chain it would set the ground for leveraging the capabilities of the
automotive component-manufacturers who already operated in its target markets In other words Telco planned
to use its skills as an integrator--bringing together products and services from both upstream and downstream
operations and packaging them for the customer under a brand name in its new venture
Globally a car could be built in 48 months with an investment of US $ 3 billion (Rs 1275 billion) Indica was
built in 31 months on a budget of Rs 17 billion This seemed to have been possible by focussing on the supply
chain
Chapter 61 THE OUTSOURCING STRATEGY
For Telco outsourcing seemed to be one of the most difficult aspects of producing the Indica Unlike global
automobile majors Ford Motors or General Motors which had a global vendor-base that could be replicated on
a smaller scale in India Telco had to create a vendor-base from scratch Moreover it did not have the expertise
either to design a car or to build an engine for it
Against this background Telco had to take its primary lsquomake-or-buyrsquo decisions for the key inputs-design
engine and transmission Telco decided to shop globally for the best deals and use its own expertise to make
42
whatever modifications were needed
(Refer Table I for the components outsourced by Telco)
TABLE I
OUTSOURCING THE COMPONENTS
Components Supplier
5 door hatchback IDEA Italy
Engine Institut Francais du Petrol
France
Assembly Line Nissanrsquos Plant Australia
Presses Mercedes Benz
Pistons and Piston rings India Pistons
Electrical components and fuel injection
systems Lucas-TVS
Steering systems Rane TRW Steering Systems
Clutch facings and rear (drum) brake linings Sundaram Brake Linings (SBL)
Seating Systems Tata-Johnson Controls
Radiators Tata-Toyo
Rear view mirrors Tata-Ficosa
Front and rear bumper dash-board inside
trims Tata-Auto Plastics
Air conditioning kits Subros Ltd
Wind screens and windows Asahi Glass
Fuel lines Imperial Auto
Differential assemblies Sona Steering
43
Sheet metal items JBM Tools
Source Business Today March 22 1999 and December 7 1999
Telco turned to the Italian company IDEA for the product-design It bought the engine from the Institut
Francais du Petrol of France and applied its engineering skills to adapt the engine requirements The transmission
was developed in-house at its Engineering Research Centre (ERC) at Pune Of the Rs 25 billion it spent on
designing the Indica the major share went in buying design tools and training its engineers in new skills Telcorsquos
engineers traveled regularly to the sites of its technology suppliers to receive training before the actual delivery
of the machines
Telco also outsourced its assembly line from Nissanrsquos plant in Australia for just Rs 900 million Telco
transplanted it at its factory at Chikli near Pune which was newly set up for Indica A new assembly line of the
same proportions would have cost at least Rs 4 billion Again of the 3 presses for the Indica only 1 was new
acquired for Rs 900 million while the other 2 were bought second-hand from Mercedes-Benz and modified to
suit the Indica
Telcorsquos engineers and the ERC did the application engineering programming installation and commissioning to
save around 45 of the technology costs The tooling for the car too was supplied internally by Telcorsquos machine
tool division To manage the supply chain better Telco kept the number of suppliers for Indica to just 200 as
compared to about 1000 for trucks Most of the parts were supplied by Telcorsquos traditional suppliersmdash TVS Rane
Group and Tata Auto Component Systems (Taco) who were single source suppliers Pressed parts assemblies
and drive shafts were sourced from single vendors
44
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
Chapter 31 Automobile Market Overview
The domestic automobile market has been growing at 142 per cent CAGR over the past 4 years (2000-01 to
2004-05) while the auto components market has been growing at 192 per cent CAGR (2000-01 to 2003-04) The
industry (OEMs and suppliers together) contributed nearly 4 per cent to the countryrsquos GDP in 2003-04 The
automotive sector also offers significant employment opportunities It employs 045 million people directly and
around 10 million people indirectly
The industryrsquos capabilities in design engineering and manufacturing have been recognised the world over and
most automotive majors are looking to increasingly source auto components from India
India is emerging as one of the most attractive automotive markets in the world and is poised to become a key
sourcing base for auto components The table below captures the highlights of the sector in India that illustrates
its growing significanceSee Annexure A amp B
Indian Automobile Industry
Largest three wheeler market in the world
2nd largest two wheeler market in the world
4th largest passenger vehicle market in Asia
4th largest tractor market in the world
5th largest commercial vehicle market in the world
17
Chapter 32 Automobiles - Domestic Performance
The production and domestic sales of the automobiles in India have been growing strongly While production
increased from 48 million units in 2000-1 to 85 million units in 2004-05 (a CAGR of over 15 per cent) domestic
sales during the same period have gone up from 46 million to 79 million units (CAGR 142 per cent) A positive
trend in the domestic market is that the growth has not been driven by one or two segments but is consistent
across all key segments Two wheelers which constitute the majority of the industry volume have been growing
at a rate of 143 per cent three wheelers at a rate of 14 per cent and passenger vehicles at a rate of 113 per cent
Commercial vehicles have been growing at a higher rate of nearly 235 per cent although from a lower base
Since nearly all macro-economic indicators ndash GDP infrastructure population demographics interest rates etc ndash
are showing a favourable trend the domestic market for automobiles in India is expected to continue on its
growth trajectory
Chapter 33 Exports of automobiles from India
While the domestic sales of automobiles have been increasing at a significant rate exports have taken a quantum
leap in recent years The exports of automobiles from India have been growing at a CAGR of 39 per cent for the
past four years Exports growth has been spearheaded by the passenger vehicle segment which has grown at a
rate of 574 per cent
As a result the share of passenger vehicles in overall vehicle exports has increased from 18 per cent in 1998-99 to
26 per cent in 2004-05 Europe is the biggest importer of cars from the country while predominantly African
nations import buses and trucks The Association of South East Asian Nations (ASEAN) region is
the prime destination for Indian two wheelers
18
Chapter 34 REVIEW OF THESIS DONE
This is easy to understand because the per capita disposable income of the people has gone up remarkably Over
the last five years per capita personal disposable income has gone up by around 8 which has increased
purchasing capacity of the people in the country Other factors have also contributed to this high growth in Indian
automobile sector These include lowering age of first car users shorter replacement cycles rising duel income
families nw technology which is lowering cost of ownership low car penetration in the country and most
importantly growing steel production in the country In addition wide variety and easily available financing
options are also some of the major reasons for surge in demand for automobiles in India
Global automobile manufacturers are consistently streamlining their business process by outsourcing their non-
core activities to low-cost countries like IndiaGlobal automobile manufacturers are under tremendous pressures
to innovate their manufacturing process and at the same time to reduce costs In view of the present global
competitiveness they must not only develop new features to strengthen their customer requirements but also
follow the environmental and safety standards In addition the base price of a car is expected to remain same over
the next decade As a result companies are forced to source more components from low-cost countries like India
According to Mckinsey global outsourcing of automobile and auto components would reach US$375 billion by
2015 from US$65 billion in 2002 India has plenty of scope to garner this potential According to the management
consulting firm India has the potential to notch this opportunity and reach up to US$25 billion to emerge as
major sourcing destinations along with China Mexico and Thailand Besides low cost Indias auto components
industry has the major advantage of enormous skills in process product and capital engineeringmdashits excellent
manufacturing history and good education system
19
Human beings think our way is the best but at Toyota we are told we have to always change We believe there is
no perfect way so we continue to search The goal is to break the current condition through Kaizen
- Shoichiro Toyoda Chairman Toyota Motor Corporation in December 2000
When Kaizen is applied to the workplace it means continuous improvement for - managers and workers Thus
Kaizen involves everyone in an organization to make improvements without large capital investments It can be
seen as a culture of continuous sustained improvement focusing on eliminating waste in all systems and
processes The Kaizen strategy begins and ends with people With Kaizen an involved leadership guides people
continuously to improve their abilities to meet high quality expectations low cost and on-time delivery which in
turn helps the organization gain a competitive edge
The production divisions council which checked the plants objectives occasionally modifying them taking into
account the companys profit targets replaced the production allowance councils After approval these objectives
became the Kaizen norm of each plant in terms of production efficiency The method of determining the
production efficiency was altered to make it less constrained as the standard time was fixed by measuring the time
really required for workers operations whereas earlier standard time was fixed on the basis of the best standard
time marked in the past
20
Chapter 4 Industry Profile
21
CHAPTER 4 Industry Profile
The Trans-nationals were also serious about developing vendors in India India is
bound to become an important destination for the global auto industry It took the financial turmoil in South East
Asia and the slowdown in the Chinese auto market to reinforce the targeting to Indian Market The new interest in
the small car segment also reflects certain amount of bullishness on the part of auto manufacturers about India
Despite projected over capacities--and current losses carmakers continued to queue
up their investments for small car segment To day there are 10 global auto majorsmdashincluding the $13-billion
Suzuki Motor (Japan) the $65-billion Daewoo (South Korea) the $147-billion Ford (US) the $47-billion Fiat
(Italy) and the $168-billion General Motors (US) operating in Indian Market
Chapter 41 The Pre 1997 Automobile Market
As late as 1997 the auto market in India was clearly segmented At the entry level
were MULs 800-cc car--priced between Rs 210-lakh and Rs 245 lakh--and the Omni at Rs 175 lakh At the
next level were the 993-cc Zen--priced at Rs 370 lakh--and the 999-cc Fiat Uno (Rs 362 lakh) Then came the
1300-cc Esteem models--priced between Rs 469 lakh and Rs 595 lakh--the 1498-cc Cielo (Rs 620 lakh) and
the 1598-cc Opel Astra (Rs 752 lakh) followed by premium cars like Mercedes-Benzs E-220 (Rs 22 lakh)
Changing Lanes
Two events have upset the equations in the price-segmented car market Daewoo has
Changed the lanes with the Cielo which is now priced at Rs 490 lakh and competes with the Zens top-end
model (Rs 440 lakh) and the Esteems lower-end version (Rs 469 lakh) Ceilo has created a new value segment
where the price is not proportionate to the size Daewoos strategic response has very clearly redefined
differentiation from price or size to value
22
Hyundai Motors India a subsidiary of the $27-billion Hyundai of South Korea launched
its 999-cc Santro at the Auto Expo 1998 in Delhi The model comes in five variants with the non-air-
conditioned manual transmission model priced at Rs 280 lakh and the semiautomatic air-conditioned GLS
model priced between Rs 315 lakh and Rs 4 lakh ClearlyHyundais strategy is aimed at taking on the market
leader Maruti Udyog Limited But by pricing the deluxe model at Rs 4 lakh it is also bridging the gap between
the small and the middle car segments At present Marutirsquos Esteem LX is priced Rs 70000 more than the
Santro GLS while the Cielo is priced Rs 90000 more
The further entry of new players will only blur the segments New entrants will be
involved in price war to find a foothold in the Indian market Few of the examples include
TELCOs positioning of its 1400-cc Indica car--launched in November 1998 and priced close to Marutirsquos 800-cc
model as a small carand Honda sneaking its 1300-cc City into the segment vacated by the Cielo although it is
an accepted fact that pricing or positioning cannot be done in isolation In a crowded market that must depend on
the available strategic opportunities
By creating new segments companies can broaden their market base increase
capacity utilization levels pre-empt competitors market entry moves and importantly lower costs While Maruti
did that by launching three versions of the Esteem TELCO accomplished it by using a common platform for the
Sumo the Estate and the Sierra models Hyundai is also planning to come to the market with five variants in near
future At high volumes costs can be lowered by more than 20 per cent across variants due to experience curve
effect
Configuring the sticker price for a car in the market today is no more a functional
decision It has become a strategic decision as it identifies the key segmentrsquos response
23
elasticity to the market offer The two key inhibiting factors for the poor response to the auto war fare in Indian
Car Market are basically the low per capita income at $350 (Rs 14000 at current prices) and the high
manufacturing costs A large part of the population expected to graduate from two wheelers to four wheelers has
not responded as they were supposed to during this period of time The domestic auto giant Maruti Udyog
limited still forces the new players to benchmark themselves against its products which roll out from a
depreciated yet high-volume plant It enjoys the fast mover as well as the cost advantage with the higher capacity
utilisation that helps him to cut costs across as more cars you make the cheaper they get
With the worldrsquos second largest and fastest-growing population there is no doubt that Indiarsquos potential in both
economic and population terms and the effect it will have on the auto industry in the next years During the last
two years export from this sector has grown significantly owing mainly to the export of cars and two-three-
wheelers
The industry is characterized by a very high percentage (75) of production in the 23 wheeler sector India ranks
as the largest manufacturer of motorcycles and second largest in manufacturing of scooters in the world India
today is also the second largest manufacturer of tractors as well The industry has intense forward and backward
integration
The Indian automotive industry had experienced an extraordinary growth due to the improvement in the living
standards of the middle class and an increase in their disposable incomes Moreover the liberalization steps such
as relaxation of the foreign exchange and equity regulations reduction of tariffs on imports and refining the
banking policies initiated by the Government of India have played an equally important role in bringing the
Indian Automotive industry to great heights
It is estimated that the sale of passenger cars have tripled compared to their sale in the last five years Thus the
sale of cars has reached a figure of 1 million users and is expected to increase further Its also to be noted that the
24
demand for luxurious models SUVs and mini-cars for family owners have shot up largely due to increase in the
consumers buying capacity
The Indian automotive market
India country fact file 2005
Population 1 080 264388
Per Capita GDP (PPP) $3400
GDP Growth Rate 71
Total automotive sales 2005 1 439604 (889333)
Total automotive production 2005 1 643460 (1 000567)
Market growth 2005 vs 2004 70 (64)
Best sold model PC segment 2004 Maruti Alto (168)
Best sold model LCV segment 2004 Maruti Omni (213)
(passenger cars) (market share in segment)
Source httpwwwsegmentycomIndiahtm
Chapter 42 The Protected Indian Domestic Automobile Sector
MUL which set up shop in 1984 had 10 long years of relative protection to emerge as a formidable competitor
with high volume and a strong brand image in the mind of Indian customers When the industry was deregulated
in 1993 the cost barrier had become so high that new companies could not dare to look at the small car segment
25
Instead they settled for the mid-size segment where both volumes and margins were expected to be high
However a shakeout in the Indian mid-size car segment the slowdown in international auto sales pushed
transnational auto majors into India which have now turned the tide against MULThe present generation small
cars launched recently are more contemporary in terms of both design and technology while Marutis small-car
technology is at least a decade old
Keeping the future growth potential of Indian market in mind the auto majors are prepared to bear losses for the
next 10 years This will help them to gain a good market share the long run and provide breathing space to
counter the strategic moves of the leader Hence the narrowing price differential between the old and the new
small cars is the first call of the auto majors against Maruti in Indian Market If Maruti has to try and match the
features of new generation small cars it would mean additional costs On the contrary if Maruti decides to
hold its price line and add new features it could translate into losses or at least low profits But MUL can still
bank on at least two Suzuki models the proposed 657-cc Cervo C and the current 996-cc Wagon R to battle its
rivals in the future
Chapter 43 The Advent of the Auto Majors
Besides bracing up for losses in the initial years auto majors like Hyundai and Daewoo are banking on exports
too At the moment export may look unattractive because of the South Asian meltdown but in the long run low
production costs and component-manufacturing skills will make India- made cars competitive at global market
place Hence they are looking India as a production base to cater to the growing Asian market by way of
outsourcing from Indian manufacturing base However many a hurdles they have to cross on the journey to
profitability
26
The investments necessary for a large plant are simply huge Daewoo has so far sunk Rs 2700 crore in a
120-lakh-unit-a-year plant Unlike China which has restricted the number of companies India has followed an
open door policy for car manufacturers which has resulted in emergence of fragmented markets with distributed
capacity
An Original Equipment Manufacturer (OEM) needs a minimum economic size of 150 lakh cars a year to attract
vendor interest Daewoo was able to slash the Cielos price as it is cheaper to import components because of the
devaluation of the South Asian currencies The auto majors are lobbying with the government to ease the strict
indigenisation norms in the new automobile policy so that they can import the components from other countries
This will help them to cut the prices and to go head on the market leader particularly in a price responsive market
like that of small car segment
The other argument is that with the given import duty of 103 per cent on Completely Knocked-Down Kits
(CKDs) which is the same as that on Completely Built-up Units (CBUs) and 68 per cent on components the
imports will become costlier and compel companies to localize their manufacture The exposure to currency
fluctuations which crippled the four Japanese light commercial vehicle projects in the late 1980s is also minimal
when a company localizes component manufacture
Besides lean manufacturing techniques like Just-In-Time (JIT) are possible only when the supplier is located
close to the manufacturing unit If Maruti is a success story it is only because it indigenised 85 per cent of its
components within five years of going on-stream
Then theres the question of servicing the replacement market for spares Customers typically expect
components to be available locally and at competitive prices Imports cannot guarantee that but it is a
27
tremendous job to localize components at the right quality and price given the supplier problems in prevalent in
India
An Original Equipment Manufacturerrsquos competitive advantage lies in its marketing skills Having achieved price
and technology parity it can easily woo the consumer with attractive financing schemes and superior after-sales
service Nudged by the competition most auto players have a clutch of schemes to offer Daewoo Motors India
provides interestfree car finance Ford Motor and General Motors have slashed interest rates MULs joint
venture finance company Maruti Countrywide is offering loans at 1350 per cent when the prevailing lending
rate is 17 per cent and above
Chapter 44 The After Sales Service Scenario
After sales service for cars is as critical as showroom deals Maruti services its 2 million customers through an
army of 174 dealers spread across the country It will be impossible for a company to duplicate such
infrastructure particularly with investments in a metro-based showroom going up to Rs 4 crore Margins in
retailing are moving from actual sales to after sales service
The problem of price war is evident with Auto majors as much as with dealers In a bid to woo the customers
dealers particularly in non-prime locations are cutting their margins It will not be surprising if single-brand
dealers eventually turn into multi-brand sellers in future
Doing so will benefit all the three constituents in the marketing chain the OEM the dealer and the buyer The
carmaker can expand his reach without expensive investment the dealer can increase his revenue and the
customer gets a variety of models and brands under one roof in future
The local partner will be the loser in this fierce battle Without the means to make either matching equity or
technological investment the Indian collaborator will be driven off the road
28
It has already happened to the Rs 166-crore DCM which tied up with Daewoo Motors and can happen to both
the Rs 1258-crore Hindustan Motors (Partner General Motors) and the Rs 360657 crore Mahindra amp Mahindra
(Partner Ford Motor)
So they are reconciled to adopting a minority role or becoming auto component vendors This list includes
Siddharth Shrirams Rs 430-crore Siel (Partner Honda) the Kirloskars (Partner Toyota) and the Munjals of the
Rs 2000-crore Hero Group (Partner BMW) And the evidence is compelling eg Hindusthan Motors has a
passive role in its joint venture with General Motors although the Opel Astra is manufactured at HMs Halol plant
in Gujarat The same can be forecasted about Mahindra and Mahindrarsquos joint venture with Ford Motor What can
prolong the life of the joint venture is distribution muscle as it will take at least five years for a transnational auto
major to build a strong distribution channel in this country
By all accounts the auto industry is headed for a glut With an estimated demand for cars to touch 9 lakhs in
2001-2002 the installed capacity will rise to 16 lakhs So the current growth rate in Indian market is not
sustainable There will be at least two years of stagnant or declining demand before the resumption of the growth
trendThere is a projected demand of 1-lakh cars in the mid-segment alone by 2001-2002 And the car numbers
will add up to around 6 lakh a year That will engender a shakeout which is already afoot in the other Asian
markets For instance poor off -take and a consequent build-up of car inventories has led to a fierce price-war in
China
Chapter 45 Market Potential of Indian Automobile Segment
The demand for the small car will continue to drive growth for the next five years Of the total sales of Maruti in
2000-2001around 85 per cent were small cars The Esteems sales dropped in the same period where as the small
cars drove MULs sales So demand for small cars will leap only if certain conditions are fulfilled
29
Rise in the Income Levels In the US auto demand rises by 4 per cent for every 1 per cent increase in the real
Gross Domestic Product but this is irrelevant for India as only the top 150 per cent of the population
can afford a car The demand can shoot up if the income levels of the top 5 per cent continue to rise in future
Level Of Motorization It is stagnant at 170 cars per 1000 people for decades However in the post-liberalization
period the motorization level has leaped to 370 cars per 1000 Although it is still lower than the levels in the
developed markets motorization is bound to rise further in the coming years
Chapter 451 Vehicle Prices
Falling imports and excise duties coupled with competition will continue to boost demand and
the prices are likely to fall further at least in the short run
Chapter 452 Consumer Finance
Over 60 per cent of customers opt for consumer finance That figure could go up if interest
rates continue to fall
Chapter 453 Infrastructure
Traffic congestion and bad roads could deter potential buyers from going for small cars
particularly in small cities of India The future is not very heartening in this aspect
Chapter 454 Product Availability
As manufacturers shift their attention to the small car more and more people will be able to
afford it and demand will only rise in the future period of time
30
Chapter 46 The Future-Indian Automobile
There is a sharp contrast in the buying behavior of Indian Consumer compared to their western counter parts yet
there is no doubt that Indian car market is going to increasingly resemble the latter In the West the industry is
likely to be dominated by three or four major players With a likely demand of 11 lakh cars by 2006 there will be
a few niche players like BMW Mercedes-Benz and Audi with luxury cars to offer Unless car manufacturers
have a large range of vehicle to offer they will be unable to subsidize their costlier models
The market will consolidate to few segments The carmaker has to make diverse models based on diverse and
flexible platforms Products like the stripped-down economy car the sports utility vehicle or the van should be
built on the same platform For the price-sensitive customers there can be a no-frills version a loaded version for
the middle customer and luxury car manufacturers can target the high-end customers
The fortunes of the autoobile industry will continue to hinge on the large price sensitive customers who will
graduate to the higher end of the market over a period of time
Until then the small car will continue to drive demand and most of the car-manufacturers are
gearing up for this eventuality
31
Chapter 5 Company Profile
ldquoTata Motorsrdquo
32
CHAPTER 5 Company ProfileTata Motors
Tata Motors previously known as Tata Engineering and Locomotive Co Ltd (TELCO) is one of the largest
companies in the Tata Group and one of Indias largest business houses Tata Motors is Indias leading
commercial vehicle manufacturer and the third largest passenger car manufacturer The company is the sixth
largest truck manufacturer in the world Tata Motors recently received the Balanced Scorecard Collaborative Hall
of Fame Award for having achieved a significant turnaround of its overall performance A comprehensive quality
improvement and cost cutting initiative in September 2000 has played an important role in the companys
turnaround from a loss of Rs 500 crores in the year ended March 2001 to a profit of Rs 28 crores in the first
quarter of 2002-2003
Tata Engineering and Locomotive Company (TELCO)
Chapter 51 History amp Evolution
Tata Engineering and Locomotive Company Ltd popularly known as Telco was incorporated in 1945 to
manufacture steam locomotives In 1954 the company diversified into automobile manufacturing through a
collaboration with Daimler-Benz for the manufacture of commercial vehicles By the time the collaboration ended
in 1969 Telco had not only become an independent producer of medium commercial vehicles (MCVs) with
negligible import contentbut had developed the capability of designing and developing such vehicles The
Company progressively widened its product range to cover heavy commercial vehicles (HCVs) and light
commercial vehicles (LCVs) implementing one expansion program after another
To sustain the unrelenting pace of its growth Telco added machining press and assembly
33
capacities set up its own forge and foundries and virtually created the countryrsquos automobile ancillary industry
The Company even developed facilities for designing and manufacturing state-of-the-art machine tools material
handling equipment dies and fixtures To accommodate the Companyrsquos growing activity base a large modern
complex was set up at Pune in western India and a new plant became operational at Lucknow in the north of the
country
To provide a business focus for the Companyrsquos main activity areas Telco has created twobusiness unitsrsquo -
Automobiles and Construction Equipment ndash both of which have notched up record-breaking results
Telco today has a domestic market share of 68 in the MCVHCV segment 64 in the LCV segment and 32
in the multi-utility segment Apart from commercial vehicles which range from 1 ton to 35 tons GVW Telcorsquos
automobile products also include passenger vehicles and an extraordinarily popular multi-utility vehicle All these
products have been developed inhouse by the Companyrsquos own RampD Center This Center is equipped with the
latest computeraided design hardware and software enabling the company to respond quickly to changing
customer needs both in India and abroad
Telco has been exporting its products since 1969 and currently exports about a tenth of its
output Export markets include the Middle East Africa and Southeast Asia as well as
developed countries in Europe like France UK and Spain It is intended that exports should account for 20 of
the automobiles sold by the Company
Telcorsquos second line of business Construction Equipment has also grown rapidly and the
Company currently commands a 61 share in the excavator market and 90 in the crawler cranes market in
India The hydraulically operated construction equipment made by the company is in collaboration with Hitachi
34
Construction Machinery Limited of Japan There are ambitious plans for widening the range of excavators made
by the company and for adding new lines of construction equipment A recent addition to the excavator range is
Backhoe Loader
Telco is one of Indias largest private sector companies With a turnover of Rs 6637 billion it is the countrys
leading commercial vehicle manufacturer and the worldrsquos sixth largest automobile company
The widely successful Tata Indica which is Euro 1 and 2 compliant is the countryrsquos first
indigenously designed developed and manufactured passenger car The company also
makes several other passengers vehicles including the Safari the Sumo the Sierra the Tata Estate and the
Tatamobile pick-up
The companyrsquos products have received wide acceptance not only in India but also in markets in the Middle East
Asia Africa and Europe
Chapter 52 Areas of business
The company manufactures medium heavy and light commercial vehicles multi-utility
vehicles and passenger cars It also makes general and special purpose machines for
automotive applications at its machine tool division These include NCCNC horizontal and inline machining
centers flexible manufacturing systems CNC cylindrical grinding machines and robots for welding cutting
painting and other applications
In 1999 the companyrsquos revenues from its four manufacturing plants at three locations in India were Rs 6637
billion ($15735 million) In 1998 they were Rs 7026 billion ($1893 million) (The average exchange rate in
1999 was Rs 4218 to one US dollar)
35
In the year ended 31 March 2000 the companyrsquos total exports were worth about Rs 50553 crore against about
Rs 60078 crore in the previous year
Locations
The companyrsquos manufacturing plants in India are at Jamshedpur in Bihar Pimpri and
Chinchwad near Pune in Maharashtra and Lucknow in Uttar Pradesh A fifth manufacturing facility is being set
up at Dharwad in Karnataka
Collaborations
The Company has technical tie-ups with
bull The Institute of Development in Automotive Engineering SPA Italy for assistance in
small car body design and styling
bull Nachi Fujikoshi Corporation Japan for robots for welding painting and other
automotive applications
bull Le Moteur Moderne France for the development of diesel and petrol engines for
passenger cars and
bull Robert Bausch GmbH Germany for application work on the engine management
system for 4 PL petrol engines
36
Chapter 53 Tata Motors ndashSuccessful Car Indica
TELCO launched Indica when the TATA group was in red Telco chairman Ratan Tata said that the 1400 cc car
Indica would drive the company out of the red
Tata while talking to reporters at the IETF 99 in a videoconference from Mumbai said that the overwhelming
response of over 125 lakh initial bookings for the Indica had come as a surprise It seems we touched the
national chord somewhere as people responded to the fact that this is the first Indian car said Tata Indica is not
the end of the road for Telco when it comes to passenger cars It is just the beginning as there are more to come
said Tata adding that the company was working on another mid-size car after Indica
Telco had to produce 60000 cars a year to break-even The group created two
organizations within Telco one dealing with commercial vehicles and the other with passenger cars The
company under took a major restructuring exercise whereby the passenger car and commercial vehicles divisions
would function as two separate business units Telco had a strategy to go for exports after addressing the initial
requirements of the domestic market
Awards and Recognition
In May 2000 Tata Engineering and Locomotive Company Ltd (Telco) won a national award for successful
indigenous technology used in the Indica car project The award titled National award for successful
commercialization of indigenous technology by an industrial concern for indigenous development and
commercialization of Tata Indica car was presented by the minister for human resource development science and
technology and ocean development
Dr Murli Manohar Joshi
37
In November 1999 Telco was awarded the Department of scientific and industrial research
national award for indigenous design of the Tata Indica It was the first company in India to implement stringent
emission norms well ahead of the mandate dates
Promotions
The Indica advertising made interest for the car go into overdrive The campaign revolved around the premise that
the Indica would not just meet peoples expectations it would exceed them Every advertisement has a story to
tell
Pre launch Campaign
The Indica campaign began in the right earnest in December 1998 It was advertised as the launch of a car that
will spell doom for the small cars It was directly aimed at Maruti 800 The ad line used in the first campaign was
ldquoCar makers will suddenly remember all the thing they forgot to give yourdquo This hinted that Indica would have
more features than any of the existing small cars Indica used the catch lines like ldquo More car per Carrdquo ldquoMore
dreams per carrdquo to suggest that Indica will be bigger in size to the existing small cars yet be in the small car
category It competes with the mid size cars on size and give them a run for their money with its cheaper price
tag
At the launch of the car TELCO claimed that the people would never have to suffer from a small car again and
that the n end of the year (1998) would be the end of the small cars
Launch Campaign
The launch campaign of Indica focussed on the many advantages that it offered over other cars in the same
segment It promised the customers more than the current offerings Its first advertisement carried the following
catch line ldquo50cc moped 100cc bike 800cc car Time you asked for morerdquo
38
It then concentrated its efforts on criticizing the negative aspects of Maruti 800 and highlighted how Indica has
removed those very defects and presented a very sophisticated and modern car to the Indian customer It even
pointed out that the shape of Maruti was very unconventional and that people would prefer the shape of Indica to
Maruti 800 The advertisement read ldquo Box shaped bubble shaped wedge shaped But then Gentlemen prefer
curvesrdquo
The launch campaign also focussed on the roomy interiors of Indica a feature not offered by Maruti at that point
of time Also the expertise of TATA in diesel engines and fuel efficiency of these were the highlight of the launch
campaign of Tata Indica
Post Launch Campaigns
While the Launch campaign focussed on the features of Indica the post launch advertisements focussed on the
superior after sales service and longer warranty periods offered by Indica
Telco was the first company to offer an 18-month warranty period on engine parts The most famous line used
during this campaign was ldquoWe could go on and on about service or give you the one word summary TATArdquo
While their main adversary was the Maruti 800 Telco felt that it could also tap the mid size segment using the
selling point of space given by Indica They carried a campaign which said ldquoForget small cars we even make big
cars feel smallrdquo
It then went on to highlight the fact that Indica was Euro II compliant even before it was legally binding upon car
manufacturers to do so It also highlighted the concrete wall safety test that Indica withstands and tried to
showcase the car as a safe and strong car
39
Chapter 6 COST REDUCTION TECHNIQUES
IN TATA MOTORSrsquoS INDICA
40
Chapter 6 Tata Indica - The Making Of The Small Car
with objective of minimizing costs
The research provides an understanding of the issues concerning the supply chain management system at
Telco in regard to its small car Indica It outlines how Telco built the supply chain for the car by leveraging its
existing competencies and how it transformed itself from an integrated truck manufacturer to an automobile
integrator and from a product-centric company to competence- centric company The case discusses various
components of the supply chain and emphasises how Telco orchestrated them with the objective of minimizing
costs
ldquoTelcorsquos 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 comerdquo
- Business India March 22 1999
In the early 1990s Telcorsquos Chairman Ratan Tata (Tata) was flirting with the idea of developing a small
car By mid-1994 a rudimentary design was in place In 1995 Telco announced that it planned to build a car
which would be priced close to the Maruti 800 shaped like the Zen and spacious as an Ambassador
Producing the new small car ndash Indica ndash represented a different kind of challenge for Telco Should Tata succeed he
would change the face of Telco As a truck-maker Telco was so integrated that it even made it own castings and
forgings As an automaker it would have to focus on the value chain that stretched between raw materials and after-sales
41
service as well as assembling the parts into the complete automobile
For its new venture Telco outsourced 80 of the components (1200 of its 1500-plus parts) from 200-odd vendors To
develop the Indica Telco had to combine the learnings from its predecessors with its own unique supply chain
management strategies to ensure a sustainable low-cost platform
By learning to build and manage a supply chain it would set the ground for leveraging the capabilities of the
automotive component-manufacturers who already operated in its target markets In other words Telco planned
to use its skills as an integrator--bringing together products and services from both upstream and downstream
operations and packaging them for the customer under a brand name in its new venture
Globally a car could be built in 48 months with an investment of US $ 3 billion (Rs 1275 billion) Indica was
built in 31 months on a budget of Rs 17 billion This seemed to have been possible by focussing on the supply
chain
Chapter 61 THE OUTSOURCING STRATEGY
For Telco outsourcing seemed to be one of the most difficult aspects of producing the Indica Unlike global
automobile majors Ford Motors or General Motors which had a global vendor-base that could be replicated on
a smaller scale in India Telco had to create a vendor-base from scratch Moreover it did not have the expertise
either to design a car or to build an engine for it
Against this background Telco had to take its primary lsquomake-or-buyrsquo decisions for the key inputs-design
engine and transmission Telco decided to shop globally for the best deals and use its own expertise to make
42
whatever modifications were needed
(Refer Table I for the components outsourced by Telco)
TABLE I
OUTSOURCING THE COMPONENTS
Components Supplier
5 door hatchback IDEA Italy
Engine Institut Francais du Petrol
France
Assembly Line Nissanrsquos Plant Australia
Presses Mercedes Benz
Pistons and Piston rings India Pistons
Electrical components and fuel injection
systems Lucas-TVS
Steering systems Rane TRW Steering Systems
Clutch facings and rear (drum) brake linings Sundaram Brake Linings (SBL)
Seating Systems Tata-Johnson Controls
Radiators Tata-Toyo
Rear view mirrors Tata-Ficosa
Front and rear bumper dash-board inside
trims Tata-Auto Plastics
Air conditioning kits Subros Ltd
Wind screens and windows Asahi Glass
Fuel lines Imperial Auto
Differential assemblies Sona Steering
43
Sheet metal items JBM Tools
Source Business Today March 22 1999 and December 7 1999
Telco turned to the Italian company IDEA for the product-design It bought the engine from the Institut
Francais du Petrol of France and applied its engineering skills to adapt the engine requirements The transmission
was developed in-house at its Engineering Research Centre (ERC) at Pune Of the Rs 25 billion it spent on
designing the Indica the major share went in buying design tools and training its engineers in new skills Telcorsquos
engineers traveled regularly to the sites of its technology suppliers to receive training before the actual delivery
of the machines
Telco also outsourced its assembly line from Nissanrsquos plant in Australia for just Rs 900 million Telco
transplanted it at its factory at Chikli near Pune which was newly set up for Indica A new assembly line of the
same proportions would have cost at least Rs 4 billion Again of the 3 presses for the Indica only 1 was new
acquired for Rs 900 million while the other 2 were bought second-hand from Mercedes-Benz and modified to
suit the Indica
Telcorsquos engineers and the ERC did the application engineering programming installation and commissioning to
save around 45 of the technology costs The tooling for the car too was supplied internally by Telcorsquos machine
tool division To manage the supply chain better Telco kept the number of suppliers for Indica to just 200 as
compared to about 1000 for trucks Most of the parts were supplied by Telcorsquos traditional suppliersmdash TVS Rane
Group and Tata Auto Component Systems (Taco) who were single source suppliers Pressed parts assemblies
and drive shafts were sourced from single vendors
44
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
Chapter 32 Automobiles - Domestic Performance
The production and domestic sales of the automobiles in India have been growing strongly While production
increased from 48 million units in 2000-1 to 85 million units in 2004-05 (a CAGR of over 15 per cent) domestic
sales during the same period have gone up from 46 million to 79 million units (CAGR 142 per cent) A positive
trend in the domestic market is that the growth has not been driven by one or two segments but is consistent
across all key segments Two wheelers which constitute the majority of the industry volume have been growing
at a rate of 143 per cent three wheelers at a rate of 14 per cent and passenger vehicles at a rate of 113 per cent
Commercial vehicles have been growing at a higher rate of nearly 235 per cent although from a lower base
Since nearly all macro-economic indicators ndash GDP infrastructure population demographics interest rates etc ndash
are showing a favourable trend the domestic market for automobiles in India is expected to continue on its
growth trajectory
Chapter 33 Exports of automobiles from India
While the domestic sales of automobiles have been increasing at a significant rate exports have taken a quantum
leap in recent years The exports of automobiles from India have been growing at a CAGR of 39 per cent for the
past four years Exports growth has been spearheaded by the passenger vehicle segment which has grown at a
rate of 574 per cent
As a result the share of passenger vehicles in overall vehicle exports has increased from 18 per cent in 1998-99 to
26 per cent in 2004-05 Europe is the biggest importer of cars from the country while predominantly African
nations import buses and trucks The Association of South East Asian Nations (ASEAN) region is
the prime destination for Indian two wheelers
18
Chapter 34 REVIEW OF THESIS DONE
This is easy to understand because the per capita disposable income of the people has gone up remarkably Over
the last five years per capita personal disposable income has gone up by around 8 which has increased
purchasing capacity of the people in the country Other factors have also contributed to this high growth in Indian
automobile sector These include lowering age of first car users shorter replacement cycles rising duel income
families nw technology which is lowering cost of ownership low car penetration in the country and most
importantly growing steel production in the country In addition wide variety and easily available financing
options are also some of the major reasons for surge in demand for automobiles in India
Global automobile manufacturers are consistently streamlining their business process by outsourcing their non-
core activities to low-cost countries like IndiaGlobal automobile manufacturers are under tremendous pressures
to innovate their manufacturing process and at the same time to reduce costs In view of the present global
competitiveness they must not only develop new features to strengthen their customer requirements but also
follow the environmental and safety standards In addition the base price of a car is expected to remain same over
the next decade As a result companies are forced to source more components from low-cost countries like India
According to Mckinsey global outsourcing of automobile and auto components would reach US$375 billion by
2015 from US$65 billion in 2002 India has plenty of scope to garner this potential According to the management
consulting firm India has the potential to notch this opportunity and reach up to US$25 billion to emerge as
major sourcing destinations along with China Mexico and Thailand Besides low cost Indias auto components
industry has the major advantage of enormous skills in process product and capital engineeringmdashits excellent
manufacturing history and good education system
19
Human beings think our way is the best but at Toyota we are told we have to always change We believe there is
no perfect way so we continue to search The goal is to break the current condition through Kaizen
- Shoichiro Toyoda Chairman Toyota Motor Corporation in December 2000
When Kaizen is applied to the workplace it means continuous improvement for - managers and workers Thus
Kaizen involves everyone in an organization to make improvements without large capital investments It can be
seen as a culture of continuous sustained improvement focusing on eliminating waste in all systems and
processes The Kaizen strategy begins and ends with people With Kaizen an involved leadership guides people
continuously to improve their abilities to meet high quality expectations low cost and on-time delivery which in
turn helps the organization gain a competitive edge
The production divisions council which checked the plants objectives occasionally modifying them taking into
account the companys profit targets replaced the production allowance councils After approval these objectives
became the Kaizen norm of each plant in terms of production efficiency The method of determining the
production efficiency was altered to make it less constrained as the standard time was fixed by measuring the time
really required for workers operations whereas earlier standard time was fixed on the basis of the best standard
time marked in the past
20
Chapter 4 Industry Profile
21
CHAPTER 4 Industry Profile
The Trans-nationals were also serious about developing vendors in India India is
bound to become an important destination for the global auto industry It took the financial turmoil in South East
Asia and the slowdown in the Chinese auto market to reinforce the targeting to Indian Market The new interest in
the small car segment also reflects certain amount of bullishness on the part of auto manufacturers about India
Despite projected over capacities--and current losses carmakers continued to queue
up their investments for small car segment To day there are 10 global auto majorsmdashincluding the $13-billion
Suzuki Motor (Japan) the $65-billion Daewoo (South Korea) the $147-billion Ford (US) the $47-billion Fiat
(Italy) and the $168-billion General Motors (US) operating in Indian Market
Chapter 41 The Pre 1997 Automobile Market
As late as 1997 the auto market in India was clearly segmented At the entry level
were MULs 800-cc car--priced between Rs 210-lakh and Rs 245 lakh--and the Omni at Rs 175 lakh At the
next level were the 993-cc Zen--priced at Rs 370 lakh--and the 999-cc Fiat Uno (Rs 362 lakh) Then came the
1300-cc Esteem models--priced between Rs 469 lakh and Rs 595 lakh--the 1498-cc Cielo (Rs 620 lakh) and
the 1598-cc Opel Astra (Rs 752 lakh) followed by premium cars like Mercedes-Benzs E-220 (Rs 22 lakh)
Changing Lanes
Two events have upset the equations in the price-segmented car market Daewoo has
Changed the lanes with the Cielo which is now priced at Rs 490 lakh and competes with the Zens top-end
model (Rs 440 lakh) and the Esteems lower-end version (Rs 469 lakh) Ceilo has created a new value segment
where the price is not proportionate to the size Daewoos strategic response has very clearly redefined
differentiation from price or size to value
22
Hyundai Motors India a subsidiary of the $27-billion Hyundai of South Korea launched
its 999-cc Santro at the Auto Expo 1998 in Delhi The model comes in five variants with the non-air-
conditioned manual transmission model priced at Rs 280 lakh and the semiautomatic air-conditioned GLS
model priced between Rs 315 lakh and Rs 4 lakh ClearlyHyundais strategy is aimed at taking on the market
leader Maruti Udyog Limited But by pricing the deluxe model at Rs 4 lakh it is also bridging the gap between
the small and the middle car segments At present Marutirsquos Esteem LX is priced Rs 70000 more than the
Santro GLS while the Cielo is priced Rs 90000 more
The further entry of new players will only blur the segments New entrants will be
involved in price war to find a foothold in the Indian market Few of the examples include
TELCOs positioning of its 1400-cc Indica car--launched in November 1998 and priced close to Marutirsquos 800-cc
model as a small carand Honda sneaking its 1300-cc City into the segment vacated by the Cielo although it is
an accepted fact that pricing or positioning cannot be done in isolation In a crowded market that must depend on
the available strategic opportunities
By creating new segments companies can broaden their market base increase
capacity utilization levels pre-empt competitors market entry moves and importantly lower costs While Maruti
did that by launching three versions of the Esteem TELCO accomplished it by using a common platform for the
Sumo the Estate and the Sierra models Hyundai is also planning to come to the market with five variants in near
future At high volumes costs can be lowered by more than 20 per cent across variants due to experience curve
effect
Configuring the sticker price for a car in the market today is no more a functional
decision It has become a strategic decision as it identifies the key segmentrsquos response
23
elasticity to the market offer The two key inhibiting factors for the poor response to the auto war fare in Indian
Car Market are basically the low per capita income at $350 (Rs 14000 at current prices) and the high
manufacturing costs A large part of the population expected to graduate from two wheelers to four wheelers has
not responded as they were supposed to during this period of time The domestic auto giant Maruti Udyog
limited still forces the new players to benchmark themselves against its products which roll out from a
depreciated yet high-volume plant It enjoys the fast mover as well as the cost advantage with the higher capacity
utilisation that helps him to cut costs across as more cars you make the cheaper they get
With the worldrsquos second largest and fastest-growing population there is no doubt that Indiarsquos potential in both
economic and population terms and the effect it will have on the auto industry in the next years During the last
two years export from this sector has grown significantly owing mainly to the export of cars and two-three-
wheelers
The industry is characterized by a very high percentage (75) of production in the 23 wheeler sector India ranks
as the largest manufacturer of motorcycles and second largest in manufacturing of scooters in the world India
today is also the second largest manufacturer of tractors as well The industry has intense forward and backward
integration
The Indian automotive industry had experienced an extraordinary growth due to the improvement in the living
standards of the middle class and an increase in their disposable incomes Moreover the liberalization steps such
as relaxation of the foreign exchange and equity regulations reduction of tariffs on imports and refining the
banking policies initiated by the Government of India have played an equally important role in bringing the
Indian Automotive industry to great heights
It is estimated that the sale of passenger cars have tripled compared to their sale in the last five years Thus the
sale of cars has reached a figure of 1 million users and is expected to increase further Its also to be noted that the
24
demand for luxurious models SUVs and mini-cars for family owners have shot up largely due to increase in the
consumers buying capacity
The Indian automotive market
India country fact file 2005
Population 1 080 264388
Per Capita GDP (PPP) $3400
GDP Growth Rate 71
Total automotive sales 2005 1 439604 (889333)
Total automotive production 2005 1 643460 (1 000567)
Market growth 2005 vs 2004 70 (64)
Best sold model PC segment 2004 Maruti Alto (168)
Best sold model LCV segment 2004 Maruti Omni (213)
(passenger cars) (market share in segment)
Source httpwwwsegmentycomIndiahtm
Chapter 42 The Protected Indian Domestic Automobile Sector
MUL which set up shop in 1984 had 10 long years of relative protection to emerge as a formidable competitor
with high volume and a strong brand image in the mind of Indian customers When the industry was deregulated
in 1993 the cost barrier had become so high that new companies could not dare to look at the small car segment
25
Instead they settled for the mid-size segment where both volumes and margins were expected to be high
However a shakeout in the Indian mid-size car segment the slowdown in international auto sales pushed
transnational auto majors into India which have now turned the tide against MULThe present generation small
cars launched recently are more contemporary in terms of both design and technology while Marutis small-car
technology is at least a decade old
Keeping the future growth potential of Indian market in mind the auto majors are prepared to bear losses for the
next 10 years This will help them to gain a good market share the long run and provide breathing space to
counter the strategic moves of the leader Hence the narrowing price differential between the old and the new
small cars is the first call of the auto majors against Maruti in Indian Market If Maruti has to try and match the
features of new generation small cars it would mean additional costs On the contrary if Maruti decides to
hold its price line and add new features it could translate into losses or at least low profits But MUL can still
bank on at least two Suzuki models the proposed 657-cc Cervo C and the current 996-cc Wagon R to battle its
rivals in the future
Chapter 43 The Advent of the Auto Majors
Besides bracing up for losses in the initial years auto majors like Hyundai and Daewoo are banking on exports
too At the moment export may look unattractive because of the South Asian meltdown but in the long run low
production costs and component-manufacturing skills will make India- made cars competitive at global market
place Hence they are looking India as a production base to cater to the growing Asian market by way of
outsourcing from Indian manufacturing base However many a hurdles they have to cross on the journey to
profitability
26
The investments necessary for a large plant are simply huge Daewoo has so far sunk Rs 2700 crore in a
120-lakh-unit-a-year plant Unlike China which has restricted the number of companies India has followed an
open door policy for car manufacturers which has resulted in emergence of fragmented markets with distributed
capacity
An Original Equipment Manufacturer (OEM) needs a minimum economic size of 150 lakh cars a year to attract
vendor interest Daewoo was able to slash the Cielos price as it is cheaper to import components because of the
devaluation of the South Asian currencies The auto majors are lobbying with the government to ease the strict
indigenisation norms in the new automobile policy so that they can import the components from other countries
This will help them to cut the prices and to go head on the market leader particularly in a price responsive market
like that of small car segment
The other argument is that with the given import duty of 103 per cent on Completely Knocked-Down Kits
(CKDs) which is the same as that on Completely Built-up Units (CBUs) and 68 per cent on components the
imports will become costlier and compel companies to localize their manufacture The exposure to currency
fluctuations which crippled the four Japanese light commercial vehicle projects in the late 1980s is also minimal
when a company localizes component manufacture
Besides lean manufacturing techniques like Just-In-Time (JIT) are possible only when the supplier is located
close to the manufacturing unit If Maruti is a success story it is only because it indigenised 85 per cent of its
components within five years of going on-stream
Then theres the question of servicing the replacement market for spares Customers typically expect
components to be available locally and at competitive prices Imports cannot guarantee that but it is a
27
tremendous job to localize components at the right quality and price given the supplier problems in prevalent in
India
An Original Equipment Manufacturerrsquos competitive advantage lies in its marketing skills Having achieved price
and technology parity it can easily woo the consumer with attractive financing schemes and superior after-sales
service Nudged by the competition most auto players have a clutch of schemes to offer Daewoo Motors India
provides interestfree car finance Ford Motor and General Motors have slashed interest rates MULs joint
venture finance company Maruti Countrywide is offering loans at 1350 per cent when the prevailing lending
rate is 17 per cent and above
Chapter 44 The After Sales Service Scenario
After sales service for cars is as critical as showroom deals Maruti services its 2 million customers through an
army of 174 dealers spread across the country It will be impossible for a company to duplicate such
infrastructure particularly with investments in a metro-based showroom going up to Rs 4 crore Margins in
retailing are moving from actual sales to after sales service
The problem of price war is evident with Auto majors as much as with dealers In a bid to woo the customers
dealers particularly in non-prime locations are cutting their margins It will not be surprising if single-brand
dealers eventually turn into multi-brand sellers in future
Doing so will benefit all the three constituents in the marketing chain the OEM the dealer and the buyer The
carmaker can expand his reach without expensive investment the dealer can increase his revenue and the
customer gets a variety of models and brands under one roof in future
The local partner will be the loser in this fierce battle Without the means to make either matching equity or
technological investment the Indian collaborator will be driven off the road
28
It has already happened to the Rs 166-crore DCM which tied up with Daewoo Motors and can happen to both
the Rs 1258-crore Hindustan Motors (Partner General Motors) and the Rs 360657 crore Mahindra amp Mahindra
(Partner Ford Motor)
So they are reconciled to adopting a minority role or becoming auto component vendors This list includes
Siddharth Shrirams Rs 430-crore Siel (Partner Honda) the Kirloskars (Partner Toyota) and the Munjals of the
Rs 2000-crore Hero Group (Partner BMW) And the evidence is compelling eg Hindusthan Motors has a
passive role in its joint venture with General Motors although the Opel Astra is manufactured at HMs Halol plant
in Gujarat The same can be forecasted about Mahindra and Mahindrarsquos joint venture with Ford Motor What can
prolong the life of the joint venture is distribution muscle as it will take at least five years for a transnational auto
major to build a strong distribution channel in this country
By all accounts the auto industry is headed for a glut With an estimated demand for cars to touch 9 lakhs in
2001-2002 the installed capacity will rise to 16 lakhs So the current growth rate in Indian market is not
sustainable There will be at least two years of stagnant or declining demand before the resumption of the growth
trendThere is a projected demand of 1-lakh cars in the mid-segment alone by 2001-2002 And the car numbers
will add up to around 6 lakh a year That will engender a shakeout which is already afoot in the other Asian
markets For instance poor off -take and a consequent build-up of car inventories has led to a fierce price-war in
China
Chapter 45 Market Potential of Indian Automobile Segment
The demand for the small car will continue to drive growth for the next five years Of the total sales of Maruti in
2000-2001around 85 per cent were small cars The Esteems sales dropped in the same period where as the small
cars drove MULs sales So demand for small cars will leap only if certain conditions are fulfilled
29
Rise in the Income Levels In the US auto demand rises by 4 per cent for every 1 per cent increase in the real
Gross Domestic Product but this is irrelevant for India as only the top 150 per cent of the population
can afford a car The demand can shoot up if the income levels of the top 5 per cent continue to rise in future
Level Of Motorization It is stagnant at 170 cars per 1000 people for decades However in the post-liberalization
period the motorization level has leaped to 370 cars per 1000 Although it is still lower than the levels in the
developed markets motorization is bound to rise further in the coming years
Chapter 451 Vehicle Prices
Falling imports and excise duties coupled with competition will continue to boost demand and
the prices are likely to fall further at least in the short run
Chapter 452 Consumer Finance
Over 60 per cent of customers opt for consumer finance That figure could go up if interest
rates continue to fall
Chapter 453 Infrastructure
Traffic congestion and bad roads could deter potential buyers from going for small cars
particularly in small cities of India The future is not very heartening in this aspect
Chapter 454 Product Availability
As manufacturers shift their attention to the small car more and more people will be able to
afford it and demand will only rise in the future period of time
30
Chapter 46 The Future-Indian Automobile
There is a sharp contrast in the buying behavior of Indian Consumer compared to their western counter parts yet
there is no doubt that Indian car market is going to increasingly resemble the latter In the West the industry is
likely to be dominated by three or four major players With a likely demand of 11 lakh cars by 2006 there will be
a few niche players like BMW Mercedes-Benz and Audi with luxury cars to offer Unless car manufacturers
have a large range of vehicle to offer they will be unable to subsidize their costlier models
The market will consolidate to few segments The carmaker has to make diverse models based on diverse and
flexible platforms Products like the stripped-down economy car the sports utility vehicle or the van should be
built on the same platform For the price-sensitive customers there can be a no-frills version a loaded version for
the middle customer and luxury car manufacturers can target the high-end customers
The fortunes of the autoobile industry will continue to hinge on the large price sensitive customers who will
graduate to the higher end of the market over a period of time
Until then the small car will continue to drive demand and most of the car-manufacturers are
gearing up for this eventuality
31
Chapter 5 Company Profile
ldquoTata Motorsrdquo
32
CHAPTER 5 Company ProfileTata Motors
Tata Motors previously known as Tata Engineering and Locomotive Co Ltd (TELCO) is one of the largest
companies in the Tata Group and one of Indias largest business houses Tata Motors is Indias leading
commercial vehicle manufacturer and the third largest passenger car manufacturer The company is the sixth
largest truck manufacturer in the world Tata Motors recently received the Balanced Scorecard Collaborative Hall
of Fame Award for having achieved a significant turnaround of its overall performance A comprehensive quality
improvement and cost cutting initiative in September 2000 has played an important role in the companys
turnaround from a loss of Rs 500 crores in the year ended March 2001 to a profit of Rs 28 crores in the first
quarter of 2002-2003
Tata Engineering and Locomotive Company (TELCO)
Chapter 51 History amp Evolution
Tata Engineering and Locomotive Company Ltd popularly known as Telco was incorporated in 1945 to
manufacture steam locomotives In 1954 the company diversified into automobile manufacturing through a
collaboration with Daimler-Benz for the manufacture of commercial vehicles By the time the collaboration ended
in 1969 Telco had not only become an independent producer of medium commercial vehicles (MCVs) with
negligible import contentbut had developed the capability of designing and developing such vehicles The
Company progressively widened its product range to cover heavy commercial vehicles (HCVs) and light
commercial vehicles (LCVs) implementing one expansion program after another
To sustain the unrelenting pace of its growth Telco added machining press and assembly
33
capacities set up its own forge and foundries and virtually created the countryrsquos automobile ancillary industry
The Company even developed facilities for designing and manufacturing state-of-the-art machine tools material
handling equipment dies and fixtures To accommodate the Companyrsquos growing activity base a large modern
complex was set up at Pune in western India and a new plant became operational at Lucknow in the north of the
country
To provide a business focus for the Companyrsquos main activity areas Telco has created twobusiness unitsrsquo -
Automobiles and Construction Equipment ndash both of which have notched up record-breaking results
Telco today has a domestic market share of 68 in the MCVHCV segment 64 in the LCV segment and 32
in the multi-utility segment Apart from commercial vehicles which range from 1 ton to 35 tons GVW Telcorsquos
automobile products also include passenger vehicles and an extraordinarily popular multi-utility vehicle All these
products have been developed inhouse by the Companyrsquos own RampD Center This Center is equipped with the
latest computeraided design hardware and software enabling the company to respond quickly to changing
customer needs both in India and abroad
Telco has been exporting its products since 1969 and currently exports about a tenth of its
output Export markets include the Middle East Africa and Southeast Asia as well as
developed countries in Europe like France UK and Spain It is intended that exports should account for 20 of
the automobiles sold by the Company
Telcorsquos second line of business Construction Equipment has also grown rapidly and the
Company currently commands a 61 share in the excavator market and 90 in the crawler cranes market in
India The hydraulically operated construction equipment made by the company is in collaboration with Hitachi
34
Construction Machinery Limited of Japan There are ambitious plans for widening the range of excavators made
by the company and for adding new lines of construction equipment A recent addition to the excavator range is
Backhoe Loader
Telco is one of Indias largest private sector companies With a turnover of Rs 6637 billion it is the countrys
leading commercial vehicle manufacturer and the worldrsquos sixth largest automobile company
The widely successful Tata Indica which is Euro 1 and 2 compliant is the countryrsquos first
indigenously designed developed and manufactured passenger car The company also
makes several other passengers vehicles including the Safari the Sumo the Sierra the Tata Estate and the
Tatamobile pick-up
The companyrsquos products have received wide acceptance not only in India but also in markets in the Middle East
Asia Africa and Europe
Chapter 52 Areas of business
The company manufactures medium heavy and light commercial vehicles multi-utility
vehicles and passenger cars It also makes general and special purpose machines for
automotive applications at its machine tool division These include NCCNC horizontal and inline machining
centers flexible manufacturing systems CNC cylindrical grinding machines and robots for welding cutting
painting and other applications
In 1999 the companyrsquos revenues from its four manufacturing plants at three locations in India were Rs 6637
billion ($15735 million) In 1998 they were Rs 7026 billion ($1893 million) (The average exchange rate in
1999 was Rs 4218 to one US dollar)
35
In the year ended 31 March 2000 the companyrsquos total exports were worth about Rs 50553 crore against about
Rs 60078 crore in the previous year
Locations
The companyrsquos manufacturing plants in India are at Jamshedpur in Bihar Pimpri and
Chinchwad near Pune in Maharashtra and Lucknow in Uttar Pradesh A fifth manufacturing facility is being set
up at Dharwad in Karnataka
Collaborations
The Company has technical tie-ups with
bull The Institute of Development in Automotive Engineering SPA Italy for assistance in
small car body design and styling
bull Nachi Fujikoshi Corporation Japan for robots for welding painting and other
automotive applications
bull Le Moteur Moderne France for the development of diesel and petrol engines for
passenger cars and
bull Robert Bausch GmbH Germany for application work on the engine management
system for 4 PL petrol engines
36
Chapter 53 Tata Motors ndashSuccessful Car Indica
TELCO launched Indica when the TATA group was in red Telco chairman Ratan Tata said that the 1400 cc car
Indica would drive the company out of the red
Tata while talking to reporters at the IETF 99 in a videoconference from Mumbai said that the overwhelming
response of over 125 lakh initial bookings for the Indica had come as a surprise It seems we touched the
national chord somewhere as people responded to the fact that this is the first Indian car said Tata Indica is not
the end of the road for Telco when it comes to passenger cars It is just the beginning as there are more to come
said Tata adding that the company was working on another mid-size car after Indica
Telco had to produce 60000 cars a year to break-even The group created two
organizations within Telco one dealing with commercial vehicles and the other with passenger cars The
company under took a major restructuring exercise whereby the passenger car and commercial vehicles divisions
would function as two separate business units Telco had a strategy to go for exports after addressing the initial
requirements of the domestic market
Awards and Recognition
In May 2000 Tata Engineering and Locomotive Company Ltd (Telco) won a national award for successful
indigenous technology used in the Indica car project The award titled National award for successful
commercialization of indigenous technology by an industrial concern for indigenous development and
commercialization of Tata Indica car was presented by the minister for human resource development science and
technology and ocean development
Dr Murli Manohar Joshi
37
In November 1999 Telco was awarded the Department of scientific and industrial research
national award for indigenous design of the Tata Indica It was the first company in India to implement stringent
emission norms well ahead of the mandate dates
Promotions
The Indica advertising made interest for the car go into overdrive The campaign revolved around the premise that
the Indica would not just meet peoples expectations it would exceed them Every advertisement has a story to
tell
Pre launch Campaign
The Indica campaign began in the right earnest in December 1998 It was advertised as the launch of a car that
will spell doom for the small cars It was directly aimed at Maruti 800 The ad line used in the first campaign was
ldquoCar makers will suddenly remember all the thing they forgot to give yourdquo This hinted that Indica would have
more features than any of the existing small cars Indica used the catch lines like ldquo More car per Carrdquo ldquoMore
dreams per carrdquo to suggest that Indica will be bigger in size to the existing small cars yet be in the small car
category It competes with the mid size cars on size and give them a run for their money with its cheaper price
tag
At the launch of the car TELCO claimed that the people would never have to suffer from a small car again and
that the n end of the year (1998) would be the end of the small cars
Launch Campaign
The launch campaign of Indica focussed on the many advantages that it offered over other cars in the same
segment It promised the customers more than the current offerings Its first advertisement carried the following
catch line ldquo50cc moped 100cc bike 800cc car Time you asked for morerdquo
38
It then concentrated its efforts on criticizing the negative aspects of Maruti 800 and highlighted how Indica has
removed those very defects and presented a very sophisticated and modern car to the Indian customer It even
pointed out that the shape of Maruti was very unconventional and that people would prefer the shape of Indica to
Maruti 800 The advertisement read ldquo Box shaped bubble shaped wedge shaped But then Gentlemen prefer
curvesrdquo
The launch campaign also focussed on the roomy interiors of Indica a feature not offered by Maruti at that point
of time Also the expertise of TATA in diesel engines and fuel efficiency of these were the highlight of the launch
campaign of Tata Indica
Post Launch Campaigns
While the Launch campaign focussed on the features of Indica the post launch advertisements focussed on the
superior after sales service and longer warranty periods offered by Indica
Telco was the first company to offer an 18-month warranty period on engine parts The most famous line used
during this campaign was ldquoWe could go on and on about service or give you the one word summary TATArdquo
While their main adversary was the Maruti 800 Telco felt that it could also tap the mid size segment using the
selling point of space given by Indica They carried a campaign which said ldquoForget small cars we even make big
cars feel smallrdquo
It then went on to highlight the fact that Indica was Euro II compliant even before it was legally binding upon car
manufacturers to do so It also highlighted the concrete wall safety test that Indica withstands and tried to
showcase the car as a safe and strong car
39
Chapter 6 COST REDUCTION TECHNIQUES
IN TATA MOTORSrsquoS INDICA
40
Chapter 6 Tata Indica - The Making Of The Small Car
with objective of minimizing costs
The research provides an understanding of the issues concerning the supply chain management system at
Telco in regard to its small car Indica It outlines how Telco built the supply chain for the car by leveraging its
existing competencies and how it transformed itself from an integrated truck manufacturer to an automobile
integrator and from a product-centric company to competence- centric company The case discusses various
components of the supply chain and emphasises how Telco orchestrated them with the objective of minimizing
costs
ldquoTelcorsquos 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 comerdquo
- Business India March 22 1999
In the early 1990s Telcorsquos Chairman Ratan Tata (Tata) was flirting with the idea of developing a small
car By mid-1994 a rudimentary design was in place In 1995 Telco announced that it planned to build a car
which would be priced close to the Maruti 800 shaped like the Zen and spacious as an Ambassador
Producing the new small car ndash Indica ndash represented a different kind of challenge for Telco Should Tata succeed he
would change the face of Telco As a truck-maker Telco was so integrated that it even made it own castings and
forgings As an automaker it would have to focus on the value chain that stretched between raw materials and after-sales
41
service as well as assembling the parts into the complete automobile
For its new venture Telco outsourced 80 of the components (1200 of its 1500-plus parts) from 200-odd vendors To
develop the Indica Telco had to combine the learnings from its predecessors with its own unique supply chain
management strategies to ensure a sustainable low-cost platform
By learning to build and manage a supply chain it would set the ground for leveraging the capabilities of the
automotive component-manufacturers who already operated in its target markets In other words Telco planned
to use its skills as an integrator--bringing together products and services from both upstream and downstream
operations and packaging them for the customer under a brand name in its new venture
Globally a car could be built in 48 months with an investment of US $ 3 billion (Rs 1275 billion) Indica was
built in 31 months on a budget of Rs 17 billion This seemed to have been possible by focussing on the supply
chain
Chapter 61 THE OUTSOURCING STRATEGY
For Telco outsourcing seemed to be one of the most difficult aspects of producing the Indica Unlike global
automobile majors Ford Motors or General Motors which had a global vendor-base that could be replicated on
a smaller scale in India Telco had to create a vendor-base from scratch Moreover it did not have the expertise
either to design a car or to build an engine for it
Against this background Telco had to take its primary lsquomake-or-buyrsquo decisions for the key inputs-design
engine and transmission Telco decided to shop globally for the best deals and use its own expertise to make
42
whatever modifications were needed
(Refer Table I for the components outsourced by Telco)
TABLE I
OUTSOURCING THE COMPONENTS
Components Supplier
5 door hatchback IDEA Italy
Engine Institut Francais du Petrol
France
Assembly Line Nissanrsquos Plant Australia
Presses Mercedes Benz
Pistons and Piston rings India Pistons
Electrical components and fuel injection
systems Lucas-TVS
Steering systems Rane TRW Steering Systems
Clutch facings and rear (drum) brake linings Sundaram Brake Linings (SBL)
Seating Systems Tata-Johnson Controls
Radiators Tata-Toyo
Rear view mirrors Tata-Ficosa
Front and rear bumper dash-board inside
trims Tata-Auto Plastics
Air conditioning kits Subros Ltd
Wind screens and windows Asahi Glass
Fuel lines Imperial Auto
Differential assemblies Sona Steering
43
Sheet metal items JBM Tools
Source Business Today March 22 1999 and December 7 1999
Telco turned to the Italian company IDEA for the product-design It bought the engine from the Institut
Francais du Petrol of France and applied its engineering skills to adapt the engine requirements The transmission
was developed in-house at its Engineering Research Centre (ERC) at Pune Of the Rs 25 billion it spent on
designing the Indica the major share went in buying design tools and training its engineers in new skills Telcorsquos
engineers traveled regularly to the sites of its technology suppliers to receive training before the actual delivery
of the machines
Telco also outsourced its assembly line from Nissanrsquos plant in Australia for just Rs 900 million Telco
transplanted it at its factory at Chikli near Pune which was newly set up for Indica A new assembly line of the
same proportions would have cost at least Rs 4 billion Again of the 3 presses for the Indica only 1 was new
acquired for Rs 900 million while the other 2 were bought second-hand from Mercedes-Benz and modified to
suit the Indica
Telcorsquos engineers and the ERC did the application engineering programming installation and commissioning to
save around 45 of the technology costs The tooling for the car too was supplied internally by Telcorsquos machine
tool division To manage the supply chain better Telco kept the number of suppliers for Indica to just 200 as
compared to about 1000 for trucks Most of the parts were supplied by Telcorsquos traditional suppliersmdash TVS Rane
Group and Tata Auto Component Systems (Taco) who were single source suppliers Pressed parts assemblies
and drive shafts were sourced from single vendors
44
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
Chapter 34 REVIEW OF THESIS DONE
This is easy to understand because the per capita disposable income of the people has gone up remarkably Over
the last five years per capita personal disposable income has gone up by around 8 which has increased
purchasing capacity of the people in the country Other factors have also contributed to this high growth in Indian
automobile sector These include lowering age of first car users shorter replacement cycles rising duel income
families nw technology which is lowering cost of ownership low car penetration in the country and most
importantly growing steel production in the country In addition wide variety and easily available financing
options are also some of the major reasons for surge in demand for automobiles in India
Global automobile manufacturers are consistently streamlining their business process by outsourcing their non-
core activities to low-cost countries like IndiaGlobal automobile manufacturers are under tremendous pressures
to innovate their manufacturing process and at the same time to reduce costs In view of the present global
competitiveness they must not only develop new features to strengthen their customer requirements but also
follow the environmental and safety standards In addition the base price of a car is expected to remain same over
the next decade As a result companies are forced to source more components from low-cost countries like India
According to Mckinsey global outsourcing of automobile and auto components would reach US$375 billion by
2015 from US$65 billion in 2002 India has plenty of scope to garner this potential According to the management
consulting firm India has the potential to notch this opportunity and reach up to US$25 billion to emerge as
major sourcing destinations along with China Mexico and Thailand Besides low cost Indias auto components
industry has the major advantage of enormous skills in process product and capital engineeringmdashits excellent
manufacturing history and good education system
19
Human beings think our way is the best but at Toyota we are told we have to always change We believe there is
no perfect way so we continue to search The goal is to break the current condition through Kaizen
- Shoichiro Toyoda Chairman Toyota Motor Corporation in December 2000
When Kaizen is applied to the workplace it means continuous improvement for - managers and workers Thus
Kaizen involves everyone in an organization to make improvements without large capital investments It can be
seen as a culture of continuous sustained improvement focusing on eliminating waste in all systems and
processes The Kaizen strategy begins and ends with people With Kaizen an involved leadership guides people
continuously to improve their abilities to meet high quality expectations low cost and on-time delivery which in
turn helps the organization gain a competitive edge
The production divisions council which checked the plants objectives occasionally modifying them taking into
account the companys profit targets replaced the production allowance councils After approval these objectives
became the Kaizen norm of each plant in terms of production efficiency The method of determining the
production efficiency was altered to make it less constrained as the standard time was fixed by measuring the time
really required for workers operations whereas earlier standard time was fixed on the basis of the best standard
time marked in the past
20
Chapter 4 Industry Profile
21
CHAPTER 4 Industry Profile
The Trans-nationals were also serious about developing vendors in India India is
bound to become an important destination for the global auto industry It took the financial turmoil in South East
Asia and the slowdown in the Chinese auto market to reinforce the targeting to Indian Market The new interest in
the small car segment also reflects certain amount of bullishness on the part of auto manufacturers about India
Despite projected over capacities--and current losses carmakers continued to queue
up their investments for small car segment To day there are 10 global auto majorsmdashincluding the $13-billion
Suzuki Motor (Japan) the $65-billion Daewoo (South Korea) the $147-billion Ford (US) the $47-billion Fiat
(Italy) and the $168-billion General Motors (US) operating in Indian Market
Chapter 41 The Pre 1997 Automobile Market
As late as 1997 the auto market in India was clearly segmented At the entry level
were MULs 800-cc car--priced between Rs 210-lakh and Rs 245 lakh--and the Omni at Rs 175 lakh At the
next level were the 993-cc Zen--priced at Rs 370 lakh--and the 999-cc Fiat Uno (Rs 362 lakh) Then came the
1300-cc Esteem models--priced between Rs 469 lakh and Rs 595 lakh--the 1498-cc Cielo (Rs 620 lakh) and
the 1598-cc Opel Astra (Rs 752 lakh) followed by premium cars like Mercedes-Benzs E-220 (Rs 22 lakh)
Changing Lanes
Two events have upset the equations in the price-segmented car market Daewoo has
Changed the lanes with the Cielo which is now priced at Rs 490 lakh and competes with the Zens top-end
model (Rs 440 lakh) and the Esteems lower-end version (Rs 469 lakh) Ceilo has created a new value segment
where the price is not proportionate to the size Daewoos strategic response has very clearly redefined
differentiation from price or size to value
22
Hyundai Motors India a subsidiary of the $27-billion Hyundai of South Korea launched
its 999-cc Santro at the Auto Expo 1998 in Delhi The model comes in five variants with the non-air-
conditioned manual transmission model priced at Rs 280 lakh and the semiautomatic air-conditioned GLS
model priced between Rs 315 lakh and Rs 4 lakh ClearlyHyundais strategy is aimed at taking on the market
leader Maruti Udyog Limited But by pricing the deluxe model at Rs 4 lakh it is also bridging the gap between
the small and the middle car segments At present Marutirsquos Esteem LX is priced Rs 70000 more than the
Santro GLS while the Cielo is priced Rs 90000 more
The further entry of new players will only blur the segments New entrants will be
involved in price war to find a foothold in the Indian market Few of the examples include
TELCOs positioning of its 1400-cc Indica car--launched in November 1998 and priced close to Marutirsquos 800-cc
model as a small carand Honda sneaking its 1300-cc City into the segment vacated by the Cielo although it is
an accepted fact that pricing or positioning cannot be done in isolation In a crowded market that must depend on
the available strategic opportunities
By creating new segments companies can broaden their market base increase
capacity utilization levels pre-empt competitors market entry moves and importantly lower costs While Maruti
did that by launching three versions of the Esteem TELCO accomplished it by using a common platform for the
Sumo the Estate and the Sierra models Hyundai is also planning to come to the market with five variants in near
future At high volumes costs can be lowered by more than 20 per cent across variants due to experience curve
effect
Configuring the sticker price for a car in the market today is no more a functional
decision It has become a strategic decision as it identifies the key segmentrsquos response
23
elasticity to the market offer The two key inhibiting factors for the poor response to the auto war fare in Indian
Car Market are basically the low per capita income at $350 (Rs 14000 at current prices) and the high
manufacturing costs A large part of the population expected to graduate from two wheelers to four wheelers has
not responded as they were supposed to during this period of time The domestic auto giant Maruti Udyog
limited still forces the new players to benchmark themselves against its products which roll out from a
depreciated yet high-volume plant It enjoys the fast mover as well as the cost advantage with the higher capacity
utilisation that helps him to cut costs across as more cars you make the cheaper they get
With the worldrsquos second largest and fastest-growing population there is no doubt that Indiarsquos potential in both
economic and population terms and the effect it will have on the auto industry in the next years During the last
two years export from this sector has grown significantly owing mainly to the export of cars and two-three-
wheelers
The industry is characterized by a very high percentage (75) of production in the 23 wheeler sector India ranks
as the largest manufacturer of motorcycles and second largest in manufacturing of scooters in the world India
today is also the second largest manufacturer of tractors as well The industry has intense forward and backward
integration
The Indian automotive industry had experienced an extraordinary growth due to the improvement in the living
standards of the middle class and an increase in their disposable incomes Moreover the liberalization steps such
as relaxation of the foreign exchange and equity regulations reduction of tariffs on imports and refining the
banking policies initiated by the Government of India have played an equally important role in bringing the
Indian Automotive industry to great heights
It is estimated that the sale of passenger cars have tripled compared to their sale in the last five years Thus the
sale of cars has reached a figure of 1 million users and is expected to increase further Its also to be noted that the
24
demand for luxurious models SUVs and mini-cars for family owners have shot up largely due to increase in the
consumers buying capacity
The Indian automotive market
India country fact file 2005
Population 1 080 264388
Per Capita GDP (PPP) $3400
GDP Growth Rate 71
Total automotive sales 2005 1 439604 (889333)
Total automotive production 2005 1 643460 (1 000567)
Market growth 2005 vs 2004 70 (64)
Best sold model PC segment 2004 Maruti Alto (168)
Best sold model LCV segment 2004 Maruti Omni (213)
(passenger cars) (market share in segment)
Source httpwwwsegmentycomIndiahtm
Chapter 42 The Protected Indian Domestic Automobile Sector
MUL which set up shop in 1984 had 10 long years of relative protection to emerge as a formidable competitor
with high volume and a strong brand image in the mind of Indian customers When the industry was deregulated
in 1993 the cost barrier had become so high that new companies could not dare to look at the small car segment
25
Instead they settled for the mid-size segment where both volumes and margins were expected to be high
However a shakeout in the Indian mid-size car segment the slowdown in international auto sales pushed
transnational auto majors into India which have now turned the tide against MULThe present generation small
cars launched recently are more contemporary in terms of both design and technology while Marutis small-car
technology is at least a decade old
Keeping the future growth potential of Indian market in mind the auto majors are prepared to bear losses for the
next 10 years This will help them to gain a good market share the long run and provide breathing space to
counter the strategic moves of the leader Hence the narrowing price differential between the old and the new
small cars is the first call of the auto majors against Maruti in Indian Market If Maruti has to try and match the
features of new generation small cars it would mean additional costs On the contrary if Maruti decides to
hold its price line and add new features it could translate into losses or at least low profits But MUL can still
bank on at least two Suzuki models the proposed 657-cc Cervo C and the current 996-cc Wagon R to battle its
rivals in the future
Chapter 43 The Advent of the Auto Majors
Besides bracing up for losses in the initial years auto majors like Hyundai and Daewoo are banking on exports
too At the moment export may look unattractive because of the South Asian meltdown but in the long run low
production costs and component-manufacturing skills will make India- made cars competitive at global market
place Hence they are looking India as a production base to cater to the growing Asian market by way of
outsourcing from Indian manufacturing base However many a hurdles they have to cross on the journey to
profitability
26
The investments necessary for a large plant are simply huge Daewoo has so far sunk Rs 2700 crore in a
120-lakh-unit-a-year plant Unlike China which has restricted the number of companies India has followed an
open door policy for car manufacturers which has resulted in emergence of fragmented markets with distributed
capacity
An Original Equipment Manufacturer (OEM) needs a minimum economic size of 150 lakh cars a year to attract
vendor interest Daewoo was able to slash the Cielos price as it is cheaper to import components because of the
devaluation of the South Asian currencies The auto majors are lobbying with the government to ease the strict
indigenisation norms in the new automobile policy so that they can import the components from other countries
This will help them to cut the prices and to go head on the market leader particularly in a price responsive market
like that of small car segment
The other argument is that with the given import duty of 103 per cent on Completely Knocked-Down Kits
(CKDs) which is the same as that on Completely Built-up Units (CBUs) and 68 per cent on components the
imports will become costlier and compel companies to localize their manufacture The exposure to currency
fluctuations which crippled the four Japanese light commercial vehicle projects in the late 1980s is also minimal
when a company localizes component manufacture
Besides lean manufacturing techniques like Just-In-Time (JIT) are possible only when the supplier is located
close to the manufacturing unit If Maruti is a success story it is only because it indigenised 85 per cent of its
components within five years of going on-stream
Then theres the question of servicing the replacement market for spares Customers typically expect
components to be available locally and at competitive prices Imports cannot guarantee that but it is a
27
tremendous job to localize components at the right quality and price given the supplier problems in prevalent in
India
An Original Equipment Manufacturerrsquos competitive advantage lies in its marketing skills Having achieved price
and technology parity it can easily woo the consumer with attractive financing schemes and superior after-sales
service Nudged by the competition most auto players have a clutch of schemes to offer Daewoo Motors India
provides interestfree car finance Ford Motor and General Motors have slashed interest rates MULs joint
venture finance company Maruti Countrywide is offering loans at 1350 per cent when the prevailing lending
rate is 17 per cent and above
Chapter 44 The After Sales Service Scenario
After sales service for cars is as critical as showroom deals Maruti services its 2 million customers through an
army of 174 dealers spread across the country It will be impossible for a company to duplicate such
infrastructure particularly with investments in a metro-based showroom going up to Rs 4 crore Margins in
retailing are moving from actual sales to after sales service
The problem of price war is evident with Auto majors as much as with dealers In a bid to woo the customers
dealers particularly in non-prime locations are cutting their margins It will not be surprising if single-brand
dealers eventually turn into multi-brand sellers in future
Doing so will benefit all the three constituents in the marketing chain the OEM the dealer and the buyer The
carmaker can expand his reach without expensive investment the dealer can increase his revenue and the
customer gets a variety of models and brands under one roof in future
The local partner will be the loser in this fierce battle Without the means to make either matching equity or
technological investment the Indian collaborator will be driven off the road
28
It has already happened to the Rs 166-crore DCM which tied up with Daewoo Motors and can happen to both
the Rs 1258-crore Hindustan Motors (Partner General Motors) and the Rs 360657 crore Mahindra amp Mahindra
(Partner Ford Motor)
So they are reconciled to adopting a minority role or becoming auto component vendors This list includes
Siddharth Shrirams Rs 430-crore Siel (Partner Honda) the Kirloskars (Partner Toyota) and the Munjals of the
Rs 2000-crore Hero Group (Partner BMW) And the evidence is compelling eg Hindusthan Motors has a
passive role in its joint venture with General Motors although the Opel Astra is manufactured at HMs Halol plant
in Gujarat The same can be forecasted about Mahindra and Mahindrarsquos joint venture with Ford Motor What can
prolong the life of the joint venture is distribution muscle as it will take at least five years for a transnational auto
major to build a strong distribution channel in this country
By all accounts the auto industry is headed for a glut With an estimated demand for cars to touch 9 lakhs in
2001-2002 the installed capacity will rise to 16 lakhs So the current growth rate in Indian market is not
sustainable There will be at least two years of stagnant or declining demand before the resumption of the growth
trendThere is a projected demand of 1-lakh cars in the mid-segment alone by 2001-2002 And the car numbers
will add up to around 6 lakh a year That will engender a shakeout which is already afoot in the other Asian
markets For instance poor off -take and a consequent build-up of car inventories has led to a fierce price-war in
China
Chapter 45 Market Potential of Indian Automobile Segment
The demand for the small car will continue to drive growth for the next five years Of the total sales of Maruti in
2000-2001around 85 per cent were small cars The Esteems sales dropped in the same period where as the small
cars drove MULs sales So demand for small cars will leap only if certain conditions are fulfilled
29
Rise in the Income Levels In the US auto demand rises by 4 per cent for every 1 per cent increase in the real
Gross Domestic Product but this is irrelevant for India as only the top 150 per cent of the population
can afford a car The demand can shoot up if the income levels of the top 5 per cent continue to rise in future
Level Of Motorization It is stagnant at 170 cars per 1000 people for decades However in the post-liberalization
period the motorization level has leaped to 370 cars per 1000 Although it is still lower than the levels in the
developed markets motorization is bound to rise further in the coming years
Chapter 451 Vehicle Prices
Falling imports and excise duties coupled with competition will continue to boost demand and
the prices are likely to fall further at least in the short run
Chapter 452 Consumer Finance
Over 60 per cent of customers opt for consumer finance That figure could go up if interest
rates continue to fall
Chapter 453 Infrastructure
Traffic congestion and bad roads could deter potential buyers from going for small cars
particularly in small cities of India The future is not very heartening in this aspect
Chapter 454 Product Availability
As manufacturers shift their attention to the small car more and more people will be able to
afford it and demand will only rise in the future period of time
30
Chapter 46 The Future-Indian Automobile
There is a sharp contrast in the buying behavior of Indian Consumer compared to their western counter parts yet
there is no doubt that Indian car market is going to increasingly resemble the latter In the West the industry is
likely to be dominated by three or four major players With a likely demand of 11 lakh cars by 2006 there will be
a few niche players like BMW Mercedes-Benz and Audi with luxury cars to offer Unless car manufacturers
have a large range of vehicle to offer they will be unable to subsidize their costlier models
The market will consolidate to few segments The carmaker has to make diverse models based on diverse and
flexible platforms Products like the stripped-down economy car the sports utility vehicle or the van should be
built on the same platform For the price-sensitive customers there can be a no-frills version a loaded version for
the middle customer and luxury car manufacturers can target the high-end customers
The fortunes of the autoobile industry will continue to hinge on the large price sensitive customers who will
graduate to the higher end of the market over a period of time
Until then the small car will continue to drive demand and most of the car-manufacturers are
gearing up for this eventuality
31
Chapter 5 Company Profile
ldquoTata Motorsrdquo
32
CHAPTER 5 Company ProfileTata Motors
Tata Motors previously known as Tata Engineering and Locomotive Co Ltd (TELCO) is one of the largest
companies in the Tata Group and one of Indias largest business houses Tata Motors is Indias leading
commercial vehicle manufacturer and the third largest passenger car manufacturer The company is the sixth
largest truck manufacturer in the world Tata Motors recently received the Balanced Scorecard Collaborative Hall
of Fame Award for having achieved a significant turnaround of its overall performance A comprehensive quality
improvement and cost cutting initiative in September 2000 has played an important role in the companys
turnaround from a loss of Rs 500 crores in the year ended March 2001 to a profit of Rs 28 crores in the first
quarter of 2002-2003
Tata Engineering and Locomotive Company (TELCO)
Chapter 51 History amp Evolution
Tata Engineering and Locomotive Company Ltd popularly known as Telco was incorporated in 1945 to
manufacture steam locomotives In 1954 the company diversified into automobile manufacturing through a
collaboration with Daimler-Benz for the manufacture of commercial vehicles By the time the collaboration ended
in 1969 Telco had not only become an independent producer of medium commercial vehicles (MCVs) with
negligible import contentbut had developed the capability of designing and developing such vehicles The
Company progressively widened its product range to cover heavy commercial vehicles (HCVs) and light
commercial vehicles (LCVs) implementing one expansion program after another
To sustain the unrelenting pace of its growth Telco added machining press and assembly
33
capacities set up its own forge and foundries and virtually created the countryrsquos automobile ancillary industry
The Company even developed facilities for designing and manufacturing state-of-the-art machine tools material
handling equipment dies and fixtures To accommodate the Companyrsquos growing activity base a large modern
complex was set up at Pune in western India and a new plant became operational at Lucknow in the north of the
country
To provide a business focus for the Companyrsquos main activity areas Telco has created twobusiness unitsrsquo -
Automobiles and Construction Equipment ndash both of which have notched up record-breaking results
Telco today has a domestic market share of 68 in the MCVHCV segment 64 in the LCV segment and 32
in the multi-utility segment Apart from commercial vehicles which range from 1 ton to 35 tons GVW Telcorsquos
automobile products also include passenger vehicles and an extraordinarily popular multi-utility vehicle All these
products have been developed inhouse by the Companyrsquos own RampD Center This Center is equipped with the
latest computeraided design hardware and software enabling the company to respond quickly to changing
customer needs both in India and abroad
Telco has been exporting its products since 1969 and currently exports about a tenth of its
output Export markets include the Middle East Africa and Southeast Asia as well as
developed countries in Europe like France UK and Spain It is intended that exports should account for 20 of
the automobiles sold by the Company
Telcorsquos second line of business Construction Equipment has also grown rapidly and the
Company currently commands a 61 share in the excavator market and 90 in the crawler cranes market in
India The hydraulically operated construction equipment made by the company is in collaboration with Hitachi
34
Construction Machinery Limited of Japan There are ambitious plans for widening the range of excavators made
by the company and for adding new lines of construction equipment A recent addition to the excavator range is
Backhoe Loader
Telco is one of Indias largest private sector companies With a turnover of Rs 6637 billion it is the countrys
leading commercial vehicle manufacturer and the worldrsquos sixth largest automobile company
The widely successful Tata Indica which is Euro 1 and 2 compliant is the countryrsquos first
indigenously designed developed and manufactured passenger car The company also
makes several other passengers vehicles including the Safari the Sumo the Sierra the Tata Estate and the
Tatamobile pick-up
The companyrsquos products have received wide acceptance not only in India but also in markets in the Middle East
Asia Africa and Europe
Chapter 52 Areas of business
The company manufactures medium heavy and light commercial vehicles multi-utility
vehicles and passenger cars It also makes general and special purpose machines for
automotive applications at its machine tool division These include NCCNC horizontal and inline machining
centers flexible manufacturing systems CNC cylindrical grinding machines and robots for welding cutting
painting and other applications
In 1999 the companyrsquos revenues from its four manufacturing plants at three locations in India were Rs 6637
billion ($15735 million) In 1998 they were Rs 7026 billion ($1893 million) (The average exchange rate in
1999 was Rs 4218 to one US dollar)
35
In the year ended 31 March 2000 the companyrsquos total exports were worth about Rs 50553 crore against about
Rs 60078 crore in the previous year
Locations
The companyrsquos manufacturing plants in India are at Jamshedpur in Bihar Pimpri and
Chinchwad near Pune in Maharashtra and Lucknow in Uttar Pradesh A fifth manufacturing facility is being set
up at Dharwad in Karnataka
Collaborations
The Company has technical tie-ups with
bull The Institute of Development in Automotive Engineering SPA Italy for assistance in
small car body design and styling
bull Nachi Fujikoshi Corporation Japan for robots for welding painting and other
automotive applications
bull Le Moteur Moderne France for the development of diesel and petrol engines for
passenger cars and
bull Robert Bausch GmbH Germany for application work on the engine management
system for 4 PL petrol engines
36
Chapter 53 Tata Motors ndashSuccessful Car Indica
TELCO launched Indica when the TATA group was in red Telco chairman Ratan Tata said that the 1400 cc car
Indica would drive the company out of the red
Tata while talking to reporters at the IETF 99 in a videoconference from Mumbai said that the overwhelming
response of over 125 lakh initial bookings for the Indica had come as a surprise It seems we touched the
national chord somewhere as people responded to the fact that this is the first Indian car said Tata Indica is not
the end of the road for Telco when it comes to passenger cars It is just the beginning as there are more to come
said Tata adding that the company was working on another mid-size car after Indica
Telco had to produce 60000 cars a year to break-even The group created two
organizations within Telco one dealing with commercial vehicles and the other with passenger cars The
company under took a major restructuring exercise whereby the passenger car and commercial vehicles divisions
would function as two separate business units Telco had a strategy to go for exports after addressing the initial
requirements of the domestic market
Awards and Recognition
In May 2000 Tata Engineering and Locomotive Company Ltd (Telco) won a national award for successful
indigenous technology used in the Indica car project The award titled National award for successful
commercialization of indigenous technology by an industrial concern for indigenous development and
commercialization of Tata Indica car was presented by the minister for human resource development science and
technology and ocean development
Dr Murli Manohar Joshi
37
In November 1999 Telco was awarded the Department of scientific and industrial research
national award for indigenous design of the Tata Indica It was the first company in India to implement stringent
emission norms well ahead of the mandate dates
Promotions
The Indica advertising made interest for the car go into overdrive The campaign revolved around the premise that
the Indica would not just meet peoples expectations it would exceed them Every advertisement has a story to
tell
Pre launch Campaign
The Indica campaign began in the right earnest in December 1998 It was advertised as the launch of a car that
will spell doom for the small cars It was directly aimed at Maruti 800 The ad line used in the first campaign was
ldquoCar makers will suddenly remember all the thing they forgot to give yourdquo This hinted that Indica would have
more features than any of the existing small cars Indica used the catch lines like ldquo More car per Carrdquo ldquoMore
dreams per carrdquo to suggest that Indica will be bigger in size to the existing small cars yet be in the small car
category It competes with the mid size cars on size and give them a run for their money with its cheaper price
tag
At the launch of the car TELCO claimed that the people would never have to suffer from a small car again and
that the n end of the year (1998) would be the end of the small cars
Launch Campaign
The launch campaign of Indica focussed on the many advantages that it offered over other cars in the same
segment It promised the customers more than the current offerings Its first advertisement carried the following
catch line ldquo50cc moped 100cc bike 800cc car Time you asked for morerdquo
38
It then concentrated its efforts on criticizing the negative aspects of Maruti 800 and highlighted how Indica has
removed those very defects and presented a very sophisticated and modern car to the Indian customer It even
pointed out that the shape of Maruti was very unconventional and that people would prefer the shape of Indica to
Maruti 800 The advertisement read ldquo Box shaped bubble shaped wedge shaped But then Gentlemen prefer
curvesrdquo
The launch campaign also focussed on the roomy interiors of Indica a feature not offered by Maruti at that point
of time Also the expertise of TATA in diesel engines and fuel efficiency of these were the highlight of the launch
campaign of Tata Indica
Post Launch Campaigns
While the Launch campaign focussed on the features of Indica the post launch advertisements focussed on the
superior after sales service and longer warranty periods offered by Indica
Telco was the first company to offer an 18-month warranty period on engine parts The most famous line used
during this campaign was ldquoWe could go on and on about service or give you the one word summary TATArdquo
While their main adversary was the Maruti 800 Telco felt that it could also tap the mid size segment using the
selling point of space given by Indica They carried a campaign which said ldquoForget small cars we even make big
cars feel smallrdquo
It then went on to highlight the fact that Indica was Euro II compliant even before it was legally binding upon car
manufacturers to do so It also highlighted the concrete wall safety test that Indica withstands and tried to
showcase the car as a safe and strong car
39
Chapter 6 COST REDUCTION TECHNIQUES
IN TATA MOTORSrsquoS INDICA
40
Chapter 6 Tata Indica - The Making Of The Small Car
with objective of minimizing costs
The research provides an understanding of the issues concerning the supply chain management system at
Telco in regard to its small car Indica It outlines how Telco built the supply chain for the car by leveraging its
existing competencies and how it transformed itself from an integrated truck manufacturer to an automobile
integrator and from a product-centric company to competence- centric company The case discusses various
components of the supply chain and emphasises how Telco orchestrated them with the objective of minimizing
costs
ldquoTelcorsquos 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 comerdquo
- Business India March 22 1999
In the early 1990s Telcorsquos Chairman Ratan Tata (Tata) was flirting with the idea of developing a small
car By mid-1994 a rudimentary design was in place In 1995 Telco announced that it planned to build a car
which would be priced close to the Maruti 800 shaped like the Zen and spacious as an Ambassador
Producing the new small car ndash Indica ndash represented a different kind of challenge for Telco Should Tata succeed he
would change the face of Telco As a truck-maker Telco was so integrated that it even made it own castings and
forgings As an automaker it would have to focus on the value chain that stretched between raw materials and after-sales
41
service as well as assembling the parts into the complete automobile
For its new venture Telco outsourced 80 of the components (1200 of its 1500-plus parts) from 200-odd vendors To
develop the Indica Telco had to combine the learnings from its predecessors with its own unique supply chain
management strategies to ensure a sustainable low-cost platform
By learning to build and manage a supply chain it would set the ground for leveraging the capabilities of the
automotive component-manufacturers who already operated in its target markets In other words Telco planned
to use its skills as an integrator--bringing together products and services from both upstream and downstream
operations and packaging them for the customer under a brand name in its new venture
Globally a car could be built in 48 months with an investment of US $ 3 billion (Rs 1275 billion) Indica was
built in 31 months on a budget of Rs 17 billion This seemed to have been possible by focussing on the supply
chain
Chapter 61 THE OUTSOURCING STRATEGY
For Telco outsourcing seemed to be one of the most difficult aspects of producing the Indica Unlike global
automobile majors Ford Motors or General Motors which had a global vendor-base that could be replicated on
a smaller scale in India Telco had to create a vendor-base from scratch Moreover it did not have the expertise
either to design a car or to build an engine for it
Against this background Telco had to take its primary lsquomake-or-buyrsquo decisions for the key inputs-design
engine and transmission Telco decided to shop globally for the best deals and use its own expertise to make
42
whatever modifications were needed
(Refer Table I for the components outsourced by Telco)
TABLE I
OUTSOURCING THE COMPONENTS
Components Supplier
5 door hatchback IDEA Italy
Engine Institut Francais du Petrol
France
Assembly Line Nissanrsquos Plant Australia
Presses Mercedes Benz
Pistons and Piston rings India Pistons
Electrical components and fuel injection
systems Lucas-TVS
Steering systems Rane TRW Steering Systems
Clutch facings and rear (drum) brake linings Sundaram Brake Linings (SBL)
Seating Systems Tata-Johnson Controls
Radiators Tata-Toyo
Rear view mirrors Tata-Ficosa
Front and rear bumper dash-board inside
trims Tata-Auto Plastics
Air conditioning kits Subros Ltd
Wind screens and windows Asahi Glass
Fuel lines Imperial Auto
Differential assemblies Sona Steering
43
Sheet metal items JBM Tools
Source Business Today March 22 1999 and December 7 1999
Telco turned to the Italian company IDEA for the product-design It bought the engine from the Institut
Francais du Petrol of France and applied its engineering skills to adapt the engine requirements The transmission
was developed in-house at its Engineering Research Centre (ERC) at Pune Of the Rs 25 billion it spent on
designing the Indica the major share went in buying design tools and training its engineers in new skills Telcorsquos
engineers traveled regularly to the sites of its technology suppliers to receive training before the actual delivery
of the machines
Telco also outsourced its assembly line from Nissanrsquos plant in Australia for just Rs 900 million Telco
transplanted it at its factory at Chikli near Pune which was newly set up for Indica A new assembly line of the
same proportions would have cost at least Rs 4 billion Again of the 3 presses for the Indica only 1 was new
acquired for Rs 900 million while the other 2 were bought second-hand from Mercedes-Benz and modified to
suit the Indica
Telcorsquos engineers and the ERC did the application engineering programming installation and commissioning to
save around 45 of the technology costs The tooling for the car too was supplied internally by Telcorsquos machine
tool division To manage the supply chain better Telco kept the number of suppliers for Indica to just 200 as
compared to about 1000 for trucks Most of the parts were supplied by Telcorsquos traditional suppliersmdash TVS Rane
Group and Tata Auto Component Systems (Taco) who were single source suppliers Pressed parts assemblies
and drive shafts were sourced from single vendors
44
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
Human beings think our way is the best but at Toyota we are told we have to always change We believe there is
no perfect way so we continue to search The goal is to break the current condition through Kaizen
- Shoichiro Toyoda Chairman Toyota Motor Corporation in December 2000
When Kaizen is applied to the workplace it means continuous improvement for - managers and workers Thus
Kaizen involves everyone in an organization to make improvements without large capital investments It can be
seen as a culture of continuous sustained improvement focusing on eliminating waste in all systems and
processes The Kaizen strategy begins and ends with people With Kaizen an involved leadership guides people
continuously to improve their abilities to meet high quality expectations low cost and on-time delivery which in
turn helps the organization gain a competitive edge
The production divisions council which checked the plants objectives occasionally modifying them taking into
account the companys profit targets replaced the production allowance councils After approval these objectives
became the Kaizen norm of each plant in terms of production efficiency The method of determining the
production efficiency was altered to make it less constrained as the standard time was fixed by measuring the time
really required for workers operations whereas earlier standard time was fixed on the basis of the best standard
time marked in the past
20
Chapter 4 Industry Profile
21
CHAPTER 4 Industry Profile
The Trans-nationals were also serious about developing vendors in India India is
bound to become an important destination for the global auto industry It took the financial turmoil in South East
Asia and the slowdown in the Chinese auto market to reinforce the targeting to Indian Market The new interest in
the small car segment also reflects certain amount of bullishness on the part of auto manufacturers about India
Despite projected over capacities--and current losses carmakers continued to queue
up their investments for small car segment To day there are 10 global auto majorsmdashincluding the $13-billion
Suzuki Motor (Japan) the $65-billion Daewoo (South Korea) the $147-billion Ford (US) the $47-billion Fiat
(Italy) and the $168-billion General Motors (US) operating in Indian Market
Chapter 41 The Pre 1997 Automobile Market
As late as 1997 the auto market in India was clearly segmented At the entry level
were MULs 800-cc car--priced between Rs 210-lakh and Rs 245 lakh--and the Omni at Rs 175 lakh At the
next level were the 993-cc Zen--priced at Rs 370 lakh--and the 999-cc Fiat Uno (Rs 362 lakh) Then came the
1300-cc Esteem models--priced between Rs 469 lakh and Rs 595 lakh--the 1498-cc Cielo (Rs 620 lakh) and
the 1598-cc Opel Astra (Rs 752 lakh) followed by premium cars like Mercedes-Benzs E-220 (Rs 22 lakh)
Changing Lanes
Two events have upset the equations in the price-segmented car market Daewoo has
Changed the lanes with the Cielo which is now priced at Rs 490 lakh and competes with the Zens top-end
model (Rs 440 lakh) and the Esteems lower-end version (Rs 469 lakh) Ceilo has created a new value segment
where the price is not proportionate to the size Daewoos strategic response has very clearly redefined
differentiation from price or size to value
22
Hyundai Motors India a subsidiary of the $27-billion Hyundai of South Korea launched
its 999-cc Santro at the Auto Expo 1998 in Delhi The model comes in five variants with the non-air-
conditioned manual transmission model priced at Rs 280 lakh and the semiautomatic air-conditioned GLS
model priced between Rs 315 lakh and Rs 4 lakh ClearlyHyundais strategy is aimed at taking on the market
leader Maruti Udyog Limited But by pricing the deluxe model at Rs 4 lakh it is also bridging the gap between
the small and the middle car segments At present Marutirsquos Esteem LX is priced Rs 70000 more than the
Santro GLS while the Cielo is priced Rs 90000 more
The further entry of new players will only blur the segments New entrants will be
involved in price war to find a foothold in the Indian market Few of the examples include
TELCOs positioning of its 1400-cc Indica car--launched in November 1998 and priced close to Marutirsquos 800-cc
model as a small carand Honda sneaking its 1300-cc City into the segment vacated by the Cielo although it is
an accepted fact that pricing or positioning cannot be done in isolation In a crowded market that must depend on
the available strategic opportunities
By creating new segments companies can broaden their market base increase
capacity utilization levels pre-empt competitors market entry moves and importantly lower costs While Maruti
did that by launching three versions of the Esteem TELCO accomplished it by using a common platform for the
Sumo the Estate and the Sierra models Hyundai is also planning to come to the market with five variants in near
future At high volumes costs can be lowered by more than 20 per cent across variants due to experience curve
effect
Configuring the sticker price for a car in the market today is no more a functional
decision It has become a strategic decision as it identifies the key segmentrsquos response
23
elasticity to the market offer The two key inhibiting factors for the poor response to the auto war fare in Indian
Car Market are basically the low per capita income at $350 (Rs 14000 at current prices) and the high
manufacturing costs A large part of the population expected to graduate from two wheelers to four wheelers has
not responded as they were supposed to during this period of time The domestic auto giant Maruti Udyog
limited still forces the new players to benchmark themselves against its products which roll out from a
depreciated yet high-volume plant It enjoys the fast mover as well as the cost advantage with the higher capacity
utilisation that helps him to cut costs across as more cars you make the cheaper they get
With the worldrsquos second largest and fastest-growing population there is no doubt that Indiarsquos potential in both
economic and population terms and the effect it will have on the auto industry in the next years During the last
two years export from this sector has grown significantly owing mainly to the export of cars and two-three-
wheelers
The industry is characterized by a very high percentage (75) of production in the 23 wheeler sector India ranks
as the largest manufacturer of motorcycles and second largest in manufacturing of scooters in the world India
today is also the second largest manufacturer of tractors as well The industry has intense forward and backward
integration
The Indian automotive industry had experienced an extraordinary growth due to the improvement in the living
standards of the middle class and an increase in their disposable incomes Moreover the liberalization steps such
as relaxation of the foreign exchange and equity regulations reduction of tariffs on imports and refining the
banking policies initiated by the Government of India have played an equally important role in bringing the
Indian Automotive industry to great heights
It is estimated that the sale of passenger cars have tripled compared to their sale in the last five years Thus the
sale of cars has reached a figure of 1 million users and is expected to increase further Its also to be noted that the
24
demand for luxurious models SUVs and mini-cars for family owners have shot up largely due to increase in the
consumers buying capacity
The Indian automotive market
India country fact file 2005
Population 1 080 264388
Per Capita GDP (PPP) $3400
GDP Growth Rate 71
Total automotive sales 2005 1 439604 (889333)
Total automotive production 2005 1 643460 (1 000567)
Market growth 2005 vs 2004 70 (64)
Best sold model PC segment 2004 Maruti Alto (168)
Best sold model LCV segment 2004 Maruti Omni (213)
(passenger cars) (market share in segment)
Source httpwwwsegmentycomIndiahtm
Chapter 42 The Protected Indian Domestic Automobile Sector
MUL which set up shop in 1984 had 10 long years of relative protection to emerge as a formidable competitor
with high volume and a strong brand image in the mind of Indian customers When the industry was deregulated
in 1993 the cost barrier had become so high that new companies could not dare to look at the small car segment
25
Instead they settled for the mid-size segment where both volumes and margins were expected to be high
However a shakeout in the Indian mid-size car segment the slowdown in international auto sales pushed
transnational auto majors into India which have now turned the tide against MULThe present generation small
cars launched recently are more contemporary in terms of both design and technology while Marutis small-car
technology is at least a decade old
Keeping the future growth potential of Indian market in mind the auto majors are prepared to bear losses for the
next 10 years This will help them to gain a good market share the long run and provide breathing space to
counter the strategic moves of the leader Hence the narrowing price differential between the old and the new
small cars is the first call of the auto majors against Maruti in Indian Market If Maruti has to try and match the
features of new generation small cars it would mean additional costs On the contrary if Maruti decides to
hold its price line and add new features it could translate into losses or at least low profits But MUL can still
bank on at least two Suzuki models the proposed 657-cc Cervo C and the current 996-cc Wagon R to battle its
rivals in the future
Chapter 43 The Advent of the Auto Majors
Besides bracing up for losses in the initial years auto majors like Hyundai and Daewoo are banking on exports
too At the moment export may look unattractive because of the South Asian meltdown but in the long run low
production costs and component-manufacturing skills will make India- made cars competitive at global market
place Hence they are looking India as a production base to cater to the growing Asian market by way of
outsourcing from Indian manufacturing base However many a hurdles they have to cross on the journey to
profitability
26
The investments necessary for a large plant are simply huge Daewoo has so far sunk Rs 2700 crore in a
120-lakh-unit-a-year plant Unlike China which has restricted the number of companies India has followed an
open door policy for car manufacturers which has resulted in emergence of fragmented markets with distributed
capacity
An Original Equipment Manufacturer (OEM) needs a minimum economic size of 150 lakh cars a year to attract
vendor interest Daewoo was able to slash the Cielos price as it is cheaper to import components because of the
devaluation of the South Asian currencies The auto majors are lobbying with the government to ease the strict
indigenisation norms in the new automobile policy so that they can import the components from other countries
This will help them to cut the prices and to go head on the market leader particularly in a price responsive market
like that of small car segment
The other argument is that with the given import duty of 103 per cent on Completely Knocked-Down Kits
(CKDs) which is the same as that on Completely Built-up Units (CBUs) and 68 per cent on components the
imports will become costlier and compel companies to localize their manufacture The exposure to currency
fluctuations which crippled the four Japanese light commercial vehicle projects in the late 1980s is also minimal
when a company localizes component manufacture
Besides lean manufacturing techniques like Just-In-Time (JIT) are possible only when the supplier is located
close to the manufacturing unit If Maruti is a success story it is only because it indigenised 85 per cent of its
components within five years of going on-stream
Then theres the question of servicing the replacement market for spares Customers typically expect
components to be available locally and at competitive prices Imports cannot guarantee that but it is a
27
tremendous job to localize components at the right quality and price given the supplier problems in prevalent in
India
An Original Equipment Manufacturerrsquos competitive advantage lies in its marketing skills Having achieved price
and technology parity it can easily woo the consumer with attractive financing schemes and superior after-sales
service Nudged by the competition most auto players have a clutch of schemes to offer Daewoo Motors India
provides interestfree car finance Ford Motor and General Motors have slashed interest rates MULs joint
venture finance company Maruti Countrywide is offering loans at 1350 per cent when the prevailing lending
rate is 17 per cent and above
Chapter 44 The After Sales Service Scenario
After sales service for cars is as critical as showroom deals Maruti services its 2 million customers through an
army of 174 dealers spread across the country It will be impossible for a company to duplicate such
infrastructure particularly with investments in a metro-based showroom going up to Rs 4 crore Margins in
retailing are moving from actual sales to after sales service
The problem of price war is evident with Auto majors as much as with dealers In a bid to woo the customers
dealers particularly in non-prime locations are cutting their margins It will not be surprising if single-brand
dealers eventually turn into multi-brand sellers in future
Doing so will benefit all the three constituents in the marketing chain the OEM the dealer and the buyer The
carmaker can expand his reach without expensive investment the dealer can increase his revenue and the
customer gets a variety of models and brands under one roof in future
The local partner will be the loser in this fierce battle Without the means to make either matching equity or
technological investment the Indian collaborator will be driven off the road
28
It has already happened to the Rs 166-crore DCM which tied up with Daewoo Motors and can happen to both
the Rs 1258-crore Hindustan Motors (Partner General Motors) and the Rs 360657 crore Mahindra amp Mahindra
(Partner Ford Motor)
So they are reconciled to adopting a minority role or becoming auto component vendors This list includes
Siddharth Shrirams Rs 430-crore Siel (Partner Honda) the Kirloskars (Partner Toyota) and the Munjals of the
Rs 2000-crore Hero Group (Partner BMW) And the evidence is compelling eg Hindusthan Motors has a
passive role in its joint venture with General Motors although the Opel Astra is manufactured at HMs Halol plant
in Gujarat The same can be forecasted about Mahindra and Mahindrarsquos joint venture with Ford Motor What can
prolong the life of the joint venture is distribution muscle as it will take at least five years for a transnational auto
major to build a strong distribution channel in this country
By all accounts the auto industry is headed for a glut With an estimated demand for cars to touch 9 lakhs in
2001-2002 the installed capacity will rise to 16 lakhs So the current growth rate in Indian market is not
sustainable There will be at least two years of stagnant or declining demand before the resumption of the growth
trendThere is a projected demand of 1-lakh cars in the mid-segment alone by 2001-2002 And the car numbers
will add up to around 6 lakh a year That will engender a shakeout which is already afoot in the other Asian
markets For instance poor off -take and a consequent build-up of car inventories has led to a fierce price-war in
China
Chapter 45 Market Potential of Indian Automobile Segment
The demand for the small car will continue to drive growth for the next five years Of the total sales of Maruti in
2000-2001around 85 per cent were small cars The Esteems sales dropped in the same period where as the small
cars drove MULs sales So demand for small cars will leap only if certain conditions are fulfilled
29
Rise in the Income Levels In the US auto demand rises by 4 per cent for every 1 per cent increase in the real
Gross Domestic Product but this is irrelevant for India as only the top 150 per cent of the population
can afford a car The demand can shoot up if the income levels of the top 5 per cent continue to rise in future
Level Of Motorization It is stagnant at 170 cars per 1000 people for decades However in the post-liberalization
period the motorization level has leaped to 370 cars per 1000 Although it is still lower than the levels in the
developed markets motorization is bound to rise further in the coming years
Chapter 451 Vehicle Prices
Falling imports and excise duties coupled with competition will continue to boost demand and
the prices are likely to fall further at least in the short run
Chapter 452 Consumer Finance
Over 60 per cent of customers opt for consumer finance That figure could go up if interest
rates continue to fall
Chapter 453 Infrastructure
Traffic congestion and bad roads could deter potential buyers from going for small cars
particularly in small cities of India The future is not very heartening in this aspect
Chapter 454 Product Availability
As manufacturers shift their attention to the small car more and more people will be able to
afford it and demand will only rise in the future period of time
30
Chapter 46 The Future-Indian Automobile
There is a sharp contrast in the buying behavior of Indian Consumer compared to their western counter parts yet
there is no doubt that Indian car market is going to increasingly resemble the latter In the West the industry is
likely to be dominated by three or four major players With a likely demand of 11 lakh cars by 2006 there will be
a few niche players like BMW Mercedes-Benz and Audi with luxury cars to offer Unless car manufacturers
have a large range of vehicle to offer they will be unable to subsidize their costlier models
The market will consolidate to few segments The carmaker has to make diverse models based on diverse and
flexible platforms Products like the stripped-down economy car the sports utility vehicle or the van should be
built on the same platform For the price-sensitive customers there can be a no-frills version a loaded version for
the middle customer and luxury car manufacturers can target the high-end customers
The fortunes of the autoobile industry will continue to hinge on the large price sensitive customers who will
graduate to the higher end of the market over a period of time
Until then the small car will continue to drive demand and most of the car-manufacturers are
gearing up for this eventuality
31
Chapter 5 Company Profile
ldquoTata Motorsrdquo
32
CHAPTER 5 Company ProfileTata Motors
Tata Motors previously known as Tata Engineering and Locomotive Co Ltd (TELCO) is one of the largest
companies in the Tata Group and one of Indias largest business houses Tata Motors is Indias leading
commercial vehicle manufacturer and the third largest passenger car manufacturer The company is the sixth
largest truck manufacturer in the world Tata Motors recently received the Balanced Scorecard Collaborative Hall
of Fame Award for having achieved a significant turnaround of its overall performance A comprehensive quality
improvement and cost cutting initiative in September 2000 has played an important role in the companys
turnaround from a loss of Rs 500 crores in the year ended March 2001 to a profit of Rs 28 crores in the first
quarter of 2002-2003
Tata Engineering and Locomotive Company (TELCO)
Chapter 51 History amp Evolution
Tata Engineering and Locomotive Company Ltd popularly known as Telco was incorporated in 1945 to
manufacture steam locomotives In 1954 the company diversified into automobile manufacturing through a
collaboration with Daimler-Benz for the manufacture of commercial vehicles By the time the collaboration ended
in 1969 Telco had not only become an independent producer of medium commercial vehicles (MCVs) with
negligible import contentbut had developed the capability of designing and developing such vehicles The
Company progressively widened its product range to cover heavy commercial vehicles (HCVs) and light
commercial vehicles (LCVs) implementing one expansion program after another
To sustain the unrelenting pace of its growth Telco added machining press and assembly
33
capacities set up its own forge and foundries and virtually created the countryrsquos automobile ancillary industry
The Company even developed facilities for designing and manufacturing state-of-the-art machine tools material
handling equipment dies and fixtures To accommodate the Companyrsquos growing activity base a large modern
complex was set up at Pune in western India and a new plant became operational at Lucknow in the north of the
country
To provide a business focus for the Companyrsquos main activity areas Telco has created twobusiness unitsrsquo -
Automobiles and Construction Equipment ndash both of which have notched up record-breaking results
Telco today has a domestic market share of 68 in the MCVHCV segment 64 in the LCV segment and 32
in the multi-utility segment Apart from commercial vehicles which range from 1 ton to 35 tons GVW Telcorsquos
automobile products also include passenger vehicles and an extraordinarily popular multi-utility vehicle All these
products have been developed inhouse by the Companyrsquos own RampD Center This Center is equipped with the
latest computeraided design hardware and software enabling the company to respond quickly to changing
customer needs both in India and abroad
Telco has been exporting its products since 1969 and currently exports about a tenth of its
output Export markets include the Middle East Africa and Southeast Asia as well as
developed countries in Europe like France UK and Spain It is intended that exports should account for 20 of
the automobiles sold by the Company
Telcorsquos second line of business Construction Equipment has also grown rapidly and the
Company currently commands a 61 share in the excavator market and 90 in the crawler cranes market in
India The hydraulically operated construction equipment made by the company is in collaboration with Hitachi
34
Construction Machinery Limited of Japan There are ambitious plans for widening the range of excavators made
by the company and for adding new lines of construction equipment A recent addition to the excavator range is
Backhoe Loader
Telco is one of Indias largest private sector companies With a turnover of Rs 6637 billion it is the countrys
leading commercial vehicle manufacturer and the worldrsquos sixth largest automobile company
The widely successful Tata Indica which is Euro 1 and 2 compliant is the countryrsquos first
indigenously designed developed and manufactured passenger car The company also
makes several other passengers vehicles including the Safari the Sumo the Sierra the Tata Estate and the
Tatamobile pick-up
The companyrsquos products have received wide acceptance not only in India but also in markets in the Middle East
Asia Africa and Europe
Chapter 52 Areas of business
The company manufactures medium heavy and light commercial vehicles multi-utility
vehicles and passenger cars It also makes general and special purpose machines for
automotive applications at its machine tool division These include NCCNC horizontal and inline machining
centers flexible manufacturing systems CNC cylindrical grinding machines and robots for welding cutting
painting and other applications
In 1999 the companyrsquos revenues from its four manufacturing plants at three locations in India were Rs 6637
billion ($15735 million) In 1998 they were Rs 7026 billion ($1893 million) (The average exchange rate in
1999 was Rs 4218 to one US dollar)
35
In the year ended 31 March 2000 the companyrsquos total exports were worth about Rs 50553 crore against about
Rs 60078 crore in the previous year
Locations
The companyrsquos manufacturing plants in India are at Jamshedpur in Bihar Pimpri and
Chinchwad near Pune in Maharashtra and Lucknow in Uttar Pradesh A fifth manufacturing facility is being set
up at Dharwad in Karnataka
Collaborations
The Company has technical tie-ups with
bull The Institute of Development in Automotive Engineering SPA Italy for assistance in
small car body design and styling
bull Nachi Fujikoshi Corporation Japan for robots for welding painting and other
automotive applications
bull Le Moteur Moderne France for the development of diesel and petrol engines for
passenger cars and
bull Robert Bausch GmbH Germany for application work on the engine management
system for 4 PL petrol engines
36
Chapter 53 Tata Motors ndashSuccessful Car Indica
TELCO launched Indica when the TATA group was in red Telco chairman Ratan Tata said that the 1400 cc car
Indica would drive the company out of the red
Tata while talking to reporters at the IETF 99 in a videoconference from Mumbai said that the overwhelming
response of over 125 lakh initial bookings for the Indica had come as a surprise It seems we touched the
national chord somewhere as people responded to the fact that this is the first Indian car said Tata Indica is not
the end of the road for Telco when it comes to passenger cars It is just the beginning as there are more to come
said Tata adding that the company was working on another mid-size car after Indica
Telco had to produce 60000 cars a year to break-even The group created two
organizations within Telco one dealing with commercial vehicles and the other with passenger cars The
company under took a major restructuring exercise whereby the passenger car and commercial vehicles divisions
would function as two separate business units Telco had a strategy to go for exports after addressing the initial
requirements of the domestic market
Awards and Recognition
In May 2000 Tata Engineering and Locomotive Company Ltd (Telco) won a national award for successful
indigenous technology used in the Indica car project The award titled National award for successful
commercialization of indigenous technology by an industrial concern for indigenous development and
commercialization of Tata Indica car was presented by the minister for human resource development science and
technology and ocean development
Dr Murli Manohar Joshi
37
In November 1999 Telco was awarded the Department of scientific and industrial research
national award for indigenous design of the Tata Indica It was the first company in India to implement stringent
emission norms well ahead of the mandate dates
Promotions
The Indica advertising made interest for the car go into overdrive The campaign revolved around the premise that
the Indica would not just meet peoples expectations it would exceed them Every advertisement has a story to
tell
Pre launch Campaign
The Indica campaign began in the right earnest in December 1998 It was advertised as the launch of a car that
will spell doom for the small cars It was directly aimed at Maruti 800 The ad line used in the first campaign was
ldquoCar makers will suddenly remember all the thing they forgot to give yourdquo This hinted that Indica would have
more features than any of the existing small cars Indica used the catch lines like ldquo More car per Carrdquo ldquoMore
dreams per carrdquo to suggest that Indica will be bigger in size to the existing small cars yet be in the small car
category It competes with the mid size cars on size and give them a run for their money with its cheaper price
tag
At the launch of the car TELCO claimed that the people would never have to suffer from a small car again and
that the n end of the year (1998) would be the end of the small cars
Launch Campaign
The launch campaign of Indica focussed on the many advantages that it offered over other cars in the same
segment It promised the customers more than the current offerings Its first advertisement carried the following
catch line ldquo50cc moped 100cc bike 800cc car Time you asked for morerdquo
38
It then concentrated its efforts on criticizing the negative aspects of Maruti 800 and highlighted how Indica has
removed those very defects and presented a very sophisticated and modern car to the Indian customer It even
pointed out that the shape of Maruti was very unconventional and that people would prefer the shape of Indica to
Maruti 800 The advertisement read ldquo Box shaped bubble shaped wedge shaped But then Gentlemen prefer
curvesrdquo
The launch campaign also focussed on the roomy interiors of Indica a feature not offered by Maruti at that point
of time Also the expertise of TATA in diesel engines and fuel efficiency of these were the highlight of the launch
campaign of Tata Indica
Post Launch Campaigns
While the Launch campaign focussed on the features of Indica the post launch advertisements focussed on the
superior after sales service and longer warranty periods offered by Indica
Telco was the first company to offer an 18-month warranty period on engine parts The most famous line used
during this campaign was ldquoWe could go on and on about service or give you the one word summary TATArdquo
While their main adversary was the Maruti 800 Telco felt that it could also tap the mid size segment using the
selling point of space given by Indica They carried a campaign which said ldquoForget small cars we even make big
cars feel smallrdquo
It then went on to highlight the fact that Indica was Euro II compliant even before it was legally binding upon car
manufacturers to do so It also highlighted the concrete wall safety test that Indica withstands and tried to
showcase the car as a safe and strong car
39
Chapter 6 COST REDUCTION TECHNIQUES
IN TATA MOTORSrsquoS INDICA
40
Chapter 6 Tata Indica - The Making Of The Small Car
with objective of minimizing costs
The research provides an understanding of the issues concerning the supply chain management system at
Telco in regard to its small car Indica It outlines how Telco built the supply chain for the car by leveraging its
existing competencies and how it transformed itself from an integrated truck manufacturer to an automobile
integrator and from a product-centric company to competence- centric company The case discusses various
components of the supply chain and emphasises how Telco orchestrated them with the objective of minimizing
costs
ldquoTelcorsquos 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 comerdquo
- Business India March 22 1999
In the early 1990s Telcorsquos Chairman Ratan Tata (Tata) was flirting with the idea of developing a small
car By mid-1994 a rudimentary design was in place In 1995 Telco announced that it planned to build a car
which would be priced close to the Maruti 800 shaped like the Zen and spacious as an Ambassador
Producing the new small car ndash Indica ndash represented a different kind of challenge for Telco Should Tata succeed he
would change the face of Telco As a truck-maker Telco was so integrated that it even made it own castings and
forgings As an automaker it would have to focus on the value chain that stretched between raw materials and after-sales
41
service as well as assembling the parts into the complete automobile
For its new venture Telco outsourced 80 of the components (1200 of its 1500-plus parts) from 200-odd vendors To
develop the Indica Telco had to combine the learnings from its predecessors with its own unique supply chain
management strategies to ensure a sustainable low-cost platform
By learning to build and manage a supply chain it would set the ground for leveraging the capabilities of the
automotive component-manufacturers who already operated in its target markets In other words Telco planned
to use its skills as an integrator--bringing together products and services from both upstream and downstream
operations and packaging them for the customer under a brand name in its new venture
Globally a car could be built in 48 months with an investment of US $ 3 billion (Rs 1275 billion) Indica was
built in 31 months on a budget of Rs 17 billion This seemed to have been possible by focussing on the supply
chain
Chapter 61 THE OUTSOURCING STRATEGY
For Telco outsourcing seemed to be one of the most difficult aspects of producing the Indica Unlike global
automobile majors Ford Motors or General Motors which had a global vendor-base that could be replicated on
a smaller scale in India Telco had to create a vendor-base from scratch Moreover it did not have the expertise
either to design a car or to build an engine for it
Against this background Telco had to take its primary lsquomake-or-buyrsquo decisions for the key inputs-design
engine and transmission Telco decided to shop globally for the best deals and use its own expertise to make
42
whatever modifications were needed
(Refer Table I for the components outsourced by Telco)
TABLE I
OUTSOURCING THE COMPONENTS
Components Supplier
5 door hatchback IDEA Italy
Engine Institut Francais du Petrol
France
Assembly Line Nissanrsquos Plant Australia
Presses Mercedes Benz
Pistons and Piston rings India Pistons
Electrical components and fuel injection
systems Lucas-TVS
Steering systems Rane TRW Steering Systems
Clutch facings and rear (drum) brake linings Sundaram Brake Linings (SBL)
Seating Systems Tata-Johnson Controls
Radiators Tata-Toyo
Rear view mirrors Tata-Ficosa
Front and rear bumper dash-board inside
trims Tata-Auto Plastics
Air conditioning kits Subros Ltd
Wind screens and windows Asahi Glass
Fuel lines Imperial Auto
Differential assemblies Sona Steering
43
Sheet metal items JBM Tools
Source Business Today March 22 1999 and December 7 1999
Telco turned to the Italian company IDEA for the product-design It bought the engine from the Institut
Francais du Petrol of France and applied its engineering skills to adapt the engine requirements The transmission
was developed in-house at its Engineering Research Centre (ERC) at Pune Of the Rs 25 billion it spent on
designing the Indica the major share went in buying design tools and training its engineers in new skills Telcorsquos
engineers traveled regularly to the sites of its technology suppliers to receive training before the actual delivery
of the machines
Telco also outsourced its assembly line from Nissanrsquos plant in Australia for just Rs 900 million Telco
transplanted it at its factory at Chikli near Pune which was newly set up for Indica A new assembly line of the
same proportions would have cost at least Rs 4 billion Again of the 3 presses for the Indica only 1 was new
acquired for Rs 900 million while the other 2 were bought second-hand from Mercedes-Benz and modified to
suit the Indica
Telcorsquos engineers and the ERC did the application engineering programming installation and commissioning to
save around 45 of the technology costs The tooling for the car too was supplied internally by Telcorsquos machine
tool division To manage the supply chain better Telco kept the number of suppliers for Indica to just 200 as
compared to about 1000 for trucks Most of the parts were supplied by Telcorsquos traditional suppliersmdash TVS Rane
Group and Tata Auto Component Systems (Taco) who were single source suppliers Pressed parts assemblies
and drive shafts were sourced from single vendors
44
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
Chapter 4 Industry Profile
21
CHAPTER 4 Industry Profile
The Trans-nationals were also serious about developing vendors in India India is
bound to become an important destination for the global auto industry It took the financial turmoil in South East
Asia and the slowdown in the Chinese auto market to reinforce the targeting to Indian Market The new interest in
the small car segment also reflects certain amount of bullishness on the part of auto manufacturers about India
Despite projected over capacities--and current losses carmakers continued to queue
up their investments for small car segment To day there are 10 global auto majorsmdashincluding the $13-billion
Suzuki Motor (Japan) the $65-billion Daewoo (South Korea) the $147-billion Ford (US) the $47-billion Fiat
(Italy) and the $168-billion General Motors (US) operating in Indian Market
Chapter 41 The Pre 1997 Automobile Market
As late as 1997 the auto market in India was clearly segmented At the entry level
were MULs 800-cc car--priced between Rs 210-lakh and Rs 245 lakh--and the Omni at Rs 175 lakh At the
next level were the 993-cc Zen--priced at Rs 370 lakh--and the 999-cc Fiat Uno (Rs 362 lakh) Then came the
1300-cc Esteem models--priced between Rs 469 lakh and Rs 595 lakh--the 1498-cc Cielo (Rs 620 lakh) and
the 1598-cc Opel Astra (Rs 752 lakh) followed by premium cars like Mercedes-Benzs E-220 (Rs 22 lakh)
Changing Lanes
Two events have upset the equations in the price-segmented car market Daewoo has
Changed the lanes with the Cielo which is now priced at Rs 490 lakh and competes with the Zens top-end
model (Rs 440 lakh) and the Esteems lower-end version (Rs 469 lakh) Ceilo has created a new value segment
where the price is not proportionate to the size Daewoos strategic response has very clearly redefined
differentiation from price or size to value
22
Hyundai Motors India a subsidiary of the $27-billion Hyundai of South Korea launched
its 999-cc Santro at the Auto Expo 1998 in Delhi The model comes in five variants with the non-air-
conditioned manual transmission model priced at Rs 280 lakh and the semiautomatic air-conditioned GLS
model priced between Rs 315 lakh and Rs 4 lakh ClearlyHyundais strategy is aimed at taking on the market
leader Maruti Udyog Limited But by pricing the deluxe model at Rs 4 lakh it is also bridging the gap between
the small and the middle car segments At present Marutirsquos Esteem LX is priced Rs 70000 more than the
Santro GLS while the Cielo is priced Rs 90000 more
The further entry of new players will only blur the segments New entrants will be
involved in price war to find a foothold in the Indian market Few of the examples include
TELCOs positioning of its 1400-cc Indica car--launched in November 1998 and priced close to Marutirsquos 800-cc
model as a small carand Honda sneaking its 1300-cc City into the segment vacated by the Cielo although it is
an accepted fact that pricing or positioning cannot be done in isolation In a crowded market that must depend on
the available strategic opportunities
By creating new segments companies can broaden their market base increase
capacity utilization levels pre-empt competitors market entry moves and importantly lower costs While Maruti
did that by launching three versions of the Esteem TELCO accomplished it by using a common platform for the
Sumo the Estate and the Sierra models Hyundai is also planning to come to the market with five variants in near
future At high volumes costs can be lowered by more than 20 per cent across variants due to experience curve
effect
Configuring the sticker price for a car in the market today is no more a functional
decision It has become a strategic decision as it identifies the key segmentrsquos response
23
elasticity to the market offer The two key inhibiting factors for the poor response to the auto war fare in Indian
Car Market are basically the low per capita income at $350 (Rs 14000 at current prices) and the high
manufacturing costs A large part of the population expected to graduate from two wheelers to four wheelers has
not responded as they were supposed to during this period of time The domestic auto giant Maruti Udyog
limited still forces the new players to benchmark themselves against its products which roll out from a
depreciated yet high-volume plant It enjoys the fast mover as well as the cost advantage with the higher capacity
utilisation that helps him to cut costs across as more cars you make the cheaper they get
With the worldrsquos second largest and fastest-growing population there is no doubt that Indiarsquos potential in both
economic and population terms and the effect it will have on the auto industry in the next years During the last
two years export from this sector has grown significantly owing mainly to the export of cars and two-three-
wheelers
The industry is characterized by a very high percentage (75) of production in the 23 wheeler sector India ranks
as the largest manufacturer of motorcycles and second largest in manufacturing of scooters in the world India
today is also the second largest manufacturer of tractors as well The industry has intense forward and backward
integration
The Indian automotive industry had experienced an extraordinary growth due to the improvement in the living
standards of the middle class and an increase in their disposable incomes Moreover the liberalization steps such
as relaxation of the foreign exchange and equity regulations reduction of tariffs on imports and refining the
banking policies initiated by the Government of India have played an equally important role in bringing the
Indian Automotive industry to great heights
It is estimated that the sale of passenger cars have tripled compared to their sale in the last five years Thus the
sale of cars has reached a figure of 1 million users and is expected to increase further Its also to be noted that the
24
demand for luxurious models SUVs and mini-cars for family owners have shot up largely due to increase in the
consumers buying capacity
The Indian automotive market
India country fact file 2005
Population 1 080 264388
Per Capita GDP (PPP) $3400
GDP Growth Rate 71
Total automotive sales 2005 1 439604 (889333)
Total automotive production 2005 1 643460 (1 000567)
Market growth 2005 vs 2004 70 (64)
Best sold model PC segment 2004 Maruti Alto (168)
Best sold model LCV segment 2004 Maruti Omni (213)
(passenger cars) (market share in segment)
Source httpwwwsegmentycomIndiahtm
Chapter 42 The Protected Indian Domestic Automobile Sector
MUL which set up shop in 1984 had 10 long years of relative protection to emerge as a formidable competitor
with high volume and a strong brand image in the mind of Indian customers When the industry was deregulated
in 1993 the cost barrier had become so high that new companies could not dare to look at the small car segment
25
Instead they settled for the mid-size segment where both volumes and margins were expected to be high
However a shakeout in the Indian mid-size car segment the slowdown in international auto sales pushed
transnational auto majors into India which have now turned the tide against MULThe present generation small
cars launched recently are more contemporary in terms of both design and technology while Marutis small-car
technology is at least a decade old
Keeping the future growth potential of Indian market in mind the auto majors are prepared to bear losses for the
next 10 years This will help them to gain a good market share the long run and provide breathing space to
counter the strategic moves of the leader Hence the narrowing price differential between the old and the new
small cars is the first call of the auto majors against Maruti in Indian Market If Maruti has to try and match the
features of new generation small cars it would mean additional costs On the contrary if Maruti decides to
hold its price line and add new features it could translate into losses or at least low profits But MUL can still
bank on at least two Suzuki models the proposed 657-cc Cervo C and the current 996-cc Wagon R to battle its
rivals in the future
Chapter 43 The Advent of the Auto Majors
Besides bracing up for losses in the initial years auto majors like Hyundai and Daewoo are banking on exports
too At the moment export may look unattractive because of the South Asian meltdown but in the long run low
production costs and component-manufacturing skills will make India- made cars competitive at global market
place Hence they are looking India as a production base to cater to the growing Asian market by way of
outsourcing from Indian manufacturing base However many a hurdles they have to cross on the journey to
profitability
26
The investments necessary for a large plant are simply huge Daewoo has so far sunk Rs 2700 crore in a
120-lakh-unit-a-year plant Unlike China which has restricted the number of companies India has followed an
open door policy for car manufacturers which has resulted in emergence of fragmented markets with distributed
capacity
An Original Equipment Manufacturer (OEM) needs a minimum economic size of 150 lakh cars a year to attract
vendor interest Daewoo was able to slash the Cielos price as it is cheaper to import components because of the
devaluation of the South Asian currencies The auto majors are lobbying with the government to ease the strict
indigenisation norms in the new automobile policy so that they can import the components from other countries
This will help them to cut the prices and to go head on the market leader particularly in a price responsive market
like that of small car segment
The other argument is that with the given import duty of 103 per cent on Completely Knocked-Down Kits
(CKDs) which is the same as that on Completely Built-up Units (CBUs) and 68 per cent on components the
imports will become costlier and compel companies to localize their manufacture The exposure to currency
fluctuations which crippled the four Japanese light commercial vehicle projects in the late 1980s is also minimal
when a company localizes component manufacture
Besides lean manufacturing techniques like Just-In-Time (JIT) are possible only when the supplier is located
close to the manufacturing unit If Maruti is a success story it is only because it indigenised 85 per cent of its
components within five years of going on-stream
Then theres the question of servicing the replacement market for spares Customers typically expect
components to be available locally and at competitive prices Imports cannot guarantee that but it is a
27
tremendous job to localize components at the right quality and price given the supplier problems in prevalent in
India
An Original Equipment Manufacturerrsquos competitive advantage lies in its marketing skills Having achieved price
and technology parity it can easily woo the consumer with attractive financing schemes and superior after-sales
service Nudged by the competition most auto players have a clutch of schemes to offer Daewoo Motors India
provides interestfree car finance Ford Motor and General Motors have slashed interest rates MULs joint
venture finance company Maruti Countrywide is offering loans at 1350 per cent when the prevailing lending
rate is 17 per cent and above
Chapter 44 The After Sales Service Scenario
After sales service for cars is as critical as showroom deals Maruti services its 2 million customers through an
army of 174 dealers spread across the country It will be impossible for a company to duplicate such
infrastructure particularly with investments in a metro-based showroom going up to Rs 4 crore Margins in
retailing are moving from actual sales to after sales service
The problem of price war is evident with Auto majors as much as with dealers In a bid to woo the customers
dealers particularly in non-prime locations are cutting their margins It will not be surprising if single-brand
dealers eventually turn into multi-brand sellers in future
Doing so will benefit all the three constituents in the marketing chain the OEM the dealer and the buyer The
carmaker can expand his reach without expensive investment the dealer can increase his revenue and the
customer gets a variety of models and brands under one roof in future
The local partner will be the loser in this fierce battle Without the means to make either matching equity or
technological investment the Indian collaborator will be driven off the road
28
It has already happened to the Rs 166-crore DCM which tied up with Daewoo Motors and can happen to both
the Rs 1258-crore Hindustan Motors (Partner General Motors) and the Rs 360657 crore Mahindra amp Mahindra
(Partner Ford Motor)
So they are reconciled to adopting a minority role or becoming auto component vendors This list includes
Siddharth Shrirams Rs 430-crore Siel (Partner Honda) the Kirloskars (Partner Toyota) and the Munjals of the
Rs 2000-crore Hero Group (Partner BMW) And the evidence is compelling eg Hindusthan Motors has a
passive role in its joint venture with General Motors although the Opel Astra is manufactured at HMs Halol plant
in Gujarat The same can be forecasted about Mahindra and Mahindrarsquos joint venture with Ford Motor What can
prolong the life of the joint venture is distribution muscle as it will take at least five years for a transnational auto
major to build a strong distribution channel in this country
By all accounts the auto industry is headed for a glut With an estimated demand for cars to touch 9 lakhs in
2001-2002 the installed capacity will rise to 16 lakhs So the current growth rate in Indian market is not
sustainable There will be at least two years of stagnant or declining demand before the resumption of the growth
trendThere is a projected demand of 1-lakh cars in the mid-segment alone by 2001-2002 And the car numbers
will add up to around 6 lakh a year That will engender a shakeout which is already afoot in the other Asian
markets For instance poor off -take and a consequent build-up of car inventories has led to a fierce price-war in
China
Chapter 45 Market Potential of Indian Automobile Segment
The demand for the small car will continue to drive growth for the next five years Of the total sales of Maruti in
2000-2001around 85 per cent were small cars The Esteems sales dropped in the same period where as the small
cars drove MULs sales So demand for small cars will leap only if certain conditions are fulfilled
29
Rise in the Income Levels In the US auto demand rises by 4 per cent for every 1 per cent increase in the real
Gross Domestic Product but this is irrelevant for India as only the top 150 per cent of the population
can afford a car The demand can shoot up if the income levels of the top 5 per cent continue to rise in future
Level Of Motorization It is stagnant at 170 cars per 1000 people for decades However in the post-liberalization
period the motorization level has leaped to 370 cars per 1000 Although it is still lower than the levels in the
developed markets motorization is bound to rise further in the coming years
Chapter 451 Vehicle Prices
Falling imports and excise duties coupled with competition will continue to boost demand and
the prices are likely to fall further at least in the short run
Chapter 452 Consumer Finance
Over 60 per cent of customers opt for consumer finance That figure could go up if interest
rates continue to fall
Chapter 453 Infrastructure
Traffic congestion and bad roads could deter potential buyers from going for small cars
particularly in small cities of India The future is not very heartening in this aspect
Chapter 454 Product Availability
As manufacturers shift their attention to the small car more and more people will be able to
afford it and demand will only rise in the future period of time
30
Chapter 46 The Future-Indian Automobile
There is a sharp contrast in the buying behavior of Indian Consumer compared to their western counter parts yet
there is no doubt that Indian car market is going to increasingly resemble the latter In the West the industry is
likely to be dominated by three or four major players With a likely demand of 11 lakh cars by 2006 there will be
a few niche players like BMW Mercedes-Benz and Audi with luxury cars to offer Unless car manufacturers
have a large range of vehicle to offer they will be unable to subsidize their costlier models
The market will consolidate to few segments The carmaker has to make diverse models based on diverse and
flexible platforms Products like the stripped-down economy car the sports utility vehicle or the van should be
built on the same platform For the price-sensitive customers there can be a no-frills version a loaded version for
the middle customer and luxury car manufacturers can target the high-end customers
The fortunes of the autoobile industry will continue to hinge on the large price sensitive customers who will
graduate to the higher end of the market over a period of time
Until then the small car will continue to drive demand and most of the car-manufacturers are
gearing up for this eventuality
31
Chapter 5 Company Profile
ldquoTata Motorsrdquo
32
CHAPTER 5 Company ProfileTata Motors
Tata Motors previously known as Tata Engineering and Locomotive Co Ltd (TELCO) is one of the largest
companies in the Tata Group and one of Indias largest business houses Tata Motors is Indias leading
commercial vehicle manufacturer and the third largest passenger car manufacturer The company is the sixth
largest truck manufacturer in the world Tata Motors recently received the Balanced Scorecard Collaborative Hall
of Fame Award for having achieved a significant turnaround of its overall performance A comprehensive quality
improvement and cost cutting initiative in September 2000 has played an important role in the companys
turnaround from a loss of Rs 500 crores in the year ended March 2001 to a profit of Rs 28 crores in the first
quarter of 2002-2003
Tata Engineering and Locomotive Company (TELCO)
Chapter 51 History amp Evolution
Tata Engineering and Locomotive Company Ltd popularly known as Telco was incorporated in 1945 to
manufacture steam locomotives In 1954 the company diversified into automobile manufacturing through a
collaboration with Daimler-Benz for the manufacture of commercial vehicles By the time the collaboration ended
in 1969 Telco had not only become an independent producer of medium commercial vehicles (MCVs) with
negligible import contentbut had developed the capability of designing and developing such vehicles The
Company progressively widened its product range to cover heavy commercial vehicles (HCVs) and light
commercial vehicles (LCVs) implementing one expansion program after another
To sustain the unrelenting pace of its growth Telco added machining press and assembly
33
capacities set up its own forge and foundries and virtually created the countryrsquos automobile ancillary industry
The Company even developed facilities for designing and manufacturing state-of-the-art machine tools material
handling equipment dies and fixtures To accommodate the Companyrsquos growing activity base a large modern
complex was set up at Pune in western India and a new plant became operational at Lucknow in the north of the
country
To provide a business focus for the Companyrsquos main activity areas Telco has created twobusiness unitsrsquo -
Automobiles and Construction Equipment ndash both of which have notched up record-breaking results
Telco today has a domestic market share of 68 in the MCVHCV segment 64 in the LCV segment and 32
in the multi-utility segment Apart from commercial vehicles which range from 1 ton to 35 tons GVW Telcorsquos
automobile products also include passenger vehicles and an extraordinarily popular multi-utility vehicle All these
products have been developed inhouse by the Companyrsquos own RampD Center This Center is equipped with the
latest computeraided design hardware and software enabling the company to respond quickly to changing
customer needs both in India and abroad
Telco has been exporting its products since 1969 and currently exports about a tenth of its
output Export markets include the Middle East Africa and Southeast Asia as well as
developed countries in Europe like France UK and Spain It is intended that exports should account for 20 of
the automobiles sold by the Company
Telcorsquos second line of business Construction Equipment has also grown rapidly and the
Company currently commands a 61 share in the excavator market and 90 in the crawler cranes market in
India The hydraulically operated construction equipment made by the company is in collaboration with Hitachi
34
Construction Machinery Limited of Japan There are ambitious plans for widening the range of excavators made
by the company and for adding new lines of construction equipment A recent addition to the excavator range is
Backhoe Loader
Telco is one of Indias largest private sector companies With a turnover of Rs 6637 billion it is the countrys
leading commercial vehicle manufacturer and the worldrsquos sixth largest automobile company
The widely successful Tata Indica which is Euro 1 and 2 compliant is the countryrsquos first
indigenously designed developed and manufactured passenger car The company also
makes several other passengers vehicles including the Safari the Sumo the Sierra the Tata Estate and the
Tatamobile pick-up
The companyrsquos products have received wide acceptance not only in India but also in markets in the Middle East
Asia Africa and Europe
Chapter 52 Areas of business
The company manufactures medium heavy and light commercial vehicles multi-utility
vehicles and passenger cars It also makes general and special purpose machines for
automotive applications at its machine tool division These include NCCNC horizontal and inline machining
centers flexible manufacturing systems CNC cylindrical grinding machines and robots for welding cutting
painting and other applications
In 1999 the companyrsquos revenues from its four manufacturing plants at three locations in India were Rs 6637
billion ($15735 million) In 1998 they were Rs 7026 billion ($1893 million) (The average exchange rate in
1999 was Rs 4218 to one US dollar)
35
In the year ended 31 March 2000 the companyrsquos total exports were worth about Rs 50553 crore against about
Rs 60078 crore in the previous year
Locations
The companyrsquos manufacturing plants in India are at Jamshedpur in Bihar Pimpri and
Chinchwad near Pune in Maharashtra and Lucknow in Uttar Pradesh A fifth manufacturing facility is being set
up at Dharwad in Karnataka
Collaborations
The Company has technical tie-ups with
bull The Institute of Development in Automotive Engineering SPA Italy for assistance in
small car body design and styling
bull Nachi Fujikoshi Corporation Japan for robots for welding painting and other
automotive applications
bull Le Moteur Moderne France for the development of diesel and petrol engines for
passenger cars and
bull Robert Bausch GmbH Germany for application work on the engine management
system for 4 PL petrol engines
36
Chapter 53 Tata Motors ndashSuccessful Car Indica
TELCO launched Indica when the TATA group was in red Telco chairman Ratan Tata said that the 1400 cc car
Indica would drive the company out of the red
Tata while talking to reporters at the IETF 99 in a videoconference from Mumbai said that the overwhelming
response of over 125 lakh initial bookings for the Indica had come as a surprise It seems we touched the
national chord somewhere as people responded to the fact that this is the first Indian car said Tata Indica is not
the end of the road for Telco when it comes to passenger cars It is just the beginning as there are more to come
said Tata adding that the company was working on another mid-size car after Indica
Telco had to produce 60000 cars a year to break-even The group created two
organizations within Telco one dealing with commercial vehicles and the other with passenger cars The
company under took a major restructuring exercise whereby the passenger car and commercial vehicles divisions
would function as two separate business units Telco had a strategy to go for exports after addressing the initial
requirements of the domestic market
Awards and Recognition
In May 2000 Tata Engineering and Locomotive Company Ltd (Telco) won a national award for successful
indigenous technology used in the Indica car project The award titled National award for successful
commercialization of indigenous technology by an industrial concern for indigenous development and
commercialization of Tata Indica car was presented by the minister for human resource development science and
technology and ocean development
Dr Murli Manohar Joshi
37
In November 1999 Telco was awarded the Department of scientific and industrial research
national award for indigenous design of the Tata Indica It was the first company in India to implement stringent
emission norms well ahead of the mandate dates
Promotions
The Indica advertising made interest for the car go into overdrive The campaign revolved around the premise that
the Indica would not just meet peoples expectations it would exceed them Every advertisement has a story to
tell
Pre launch Campaign
The Indica campaign began in the right earnest in December 1998 It was advertised as the launch of a car that
will spell doom for the small cars It was directly aimed at Maruti 800 The ad line used in the first campaign was
ldquoCar makers will suddenly remember all the thing they forgot to give yourdquo This hinted that Indica would have
more features than any of the existing small cars Indica used the catch lines like ldquo More car per Carrdquo ldquoMore
dreams per carrdquo to suggest that Indica will be bigger in size to the existing small cars yet be in the small car
category It competes with the mid size cars on size and give them a run for their money with its cheaper price
tag
At the launch of the car TELCO claimed that the people would never have to suffer from a small car again and
that the n end of the year (1998) would be the end of the small cars
Launch Campaign
The launch campaign of Indica focussed on the many advantages that it offered over other cars in the same
segment It promised the customers more than the current offerings Its first advertisement carried the following
catch line ldquo50cc moped 100cc bike 800cc car Time you asked for morerdquo
38
It then concentrated its efforts on criticizing the negative aspects of Maruti 800 and highlighted how Indica has
removed those very defects and presented a very sophisticated and modern car to the Indian customer It even
pointed out that the shape of Maruti was very unconventional and that people would prefer the shape of Indica to
Maruti 800 The advertisement read ldquo Box shaped bubble shaped wedge shaped But then Gentlemen prefer
curvesrdquo
The launch campaign also focussed on the roomy interiors of Indica a feature not offered by Maruti at that point
of time Also the expertise of TATA in diesel engines and fuel efficiency of these were the highlight of the launch
campaign of Tata Indica
Post Launch Campaigns
While the Launch campaign focussed on the features of Indica the post launch advertisements focussed on the
superior after sales service and longer warranty periods offered by Indica
Telco was the first company to offer an 18-month warranty period on engine parts The most famous line used
during this campaign was ldquoWe could go on and on about service or give you the one word summary TATArdquo
While their main adversary was the Maruti 800 Telco felt that it could also tap the mid size segment using the
selling point of space given by Indica They carried a campaign which said ldquoForget small cars we even make big
cars feel smallrdquo
It then went on to highlight the fact that Indica was Euro II compliant even before it was legally binding upon car
manufacturers to do so It also highlighted the concrete wall safety test that Indica withstands and tried to
showcase the car as a safe and strong car
39
Chapter 6 COST REDUCTION TECHNIQUES
IN TATA MOTORSrsquoS INDICA
40
Chapter 6 Tata Indica - The Making Of The Small Car
with objective of minimizing costs
The research provides an understanding of the issues concerning the supply chain management system at
Telco in regard to its small car Indica It outlines how Telco built the supply chain for the car by leveraging its
existing competencies and how it transformed itself from an integrated truck manufacturer to an automobile
integrator and from a product-centric company to competence- centric company The case discusses various
components of the supply chain and emphasises how Telco orchestrated them with the objective of minimizing
costs
ldquoTelcorsquos 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 comerdquo
- Business India March 22 1999
In the early 1990s Telcorsquos Chairman Ratan Tata (Tata) was flirting with the idea of developing a small
car By mid-1994 a rudimentary design was in place In 1995 Telco announced that it planned to build a car
which would be priced close to the Maruti 800 shaped like the Zen and spacious as an Ambassador
Producing the new small car ndash Indica ndash represented a different kind of challenge for Telco Should Tata succeed he
would change the face of Telco As a truck-maker Telco was so integrated that it even made it own castings and
forgings As an automaker it would have to focus on the value chain that stretched between raw materials and after-sales
41
service as well as assembling the parts into the complete automobile
For its new venture Telco outsourced 80 of the components (1200 of its 1500-plus parts) from 200-odd vendors To
develop the Indica Telco had to combine the learnings from its predecessors with its own unique supply chain
management strategies to ensure a sustainable low-cost platform
By learning to build and manage a supply chain it would set the ground for leveraging the capabilities of the
automotive component-manufacturers who already operated in its target markets In other words Telco planned
to use its skills as an integrator--bringing together products and services from both upstream and downstream
operations and packaging them for the customer under a brand name in its new venture
Globally a car could be built in 48 months with an investment of US $ 3 billion (Rs 1275 billion) Indica was
built in 31 months on a budget of Rs 17 billion This seemed to have been possible by focussing on the supply
chain
Chapter 61 THE OUTSOURCING STRATEGY
For Telco outsourcing seemed to be one of the most difficult aspects of producing the Indica Unlike global
automobile majors Ford Motors or General Motors which had a global vendor-base that could be replicated on
a smaller scale in India Telco had to create a vendor-base from scratch Moreover it did not have the expertise
either to design a car or to build an engine for it
Against this background Telco had to take its primary lsquomake-or-buyrsquo decisions for the key inputs-design
engine and transmission Telco decided to shop globally for the best deals and use its own expertise to make
42
whatever modifications were needed
(Refer Table I for the components outsourced by Telco)
TABLE I
OUTSOURCING THE COMPONENTS
Components Supplier
5 door hatchback IDEA Italy
Engine Institut Francais du Petrol
France
Assembly Line Nissanrsquos Plant Australia
Presses Mercedes Benz
Pistons and Piston rings India Pistons
Electrical components and fuel injection
systems Lucas-TVS
Steering systems Rane TRW Steering Systems
Clutch facings and rear (drum) brake linings Sundaram Brake Linings (SBL)
Seating Systems Tata-Johnson Controls
Radiators Tata-Toyo
Rear view mirrors Tata-Ficosa
Front and rear bumper dash-board inside
trims Tata-Auto Plastics
Air conditioning kits Subros Ltd
Wind screens and windows Asahi Glass
Fuel lines Imperial Auto
Differential assemblies Sona Steering
43
Sheet metal items JBM Tools
Source Business Today March 22 1999 and December 7 1999
Telco turned to the Italian company IDEA for the product-design It bought the engine from the Institut
Francais du Petrol of France and applied its engineering skills to adapt the engine requirements The transmission
was developed in-house at its Engineering Research Centre (ERC) at Pune Of the Rs 25 billion it spent on
designing the Indica the major share went in buying design tools and training its engineers in new skills Telcorsquos
engineers traveled regularly to the sites of its technology suppliers to receive training before the actual delivery
of the machines
Telco also outsourced its assembly line from Nissanrsquos plant in Australia for just Rs 900 million Telco
transplanted it at its factory at Chikli near Pune which was newly set up for Indica A new assembly line of the
same proportions would have cost at least Rs 4 billion Again of the 3 presses for the Indica only 1 was new
acquired for Rs 900 million while the other 2 were bought second-hand from Mercedes-Benz and modified to
suit the Indica
Telcorsquos engineers and the ERC did the application engineering programming installation and commissioning to
save around 45 of the technology costs The tooling for the car too was supplied internally by Telcorsquos machine
tool division To manage the supply chain better Telco kept the number of suppliers for Indica to just 200 as
compared to about 1000 for trucks Most of the parts were supplied by Telcorsquos traditional suppliersmdash TVS Rane
Group and Tata Auto Component Systems (Taco) who were single source suppliers Pressed parts assemblies
and drive shafts were sourced from single vendors
44
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
CHAPTER 4 Industry Profile
The Trans-nationals were also serious about developing vendors in India India is
bound to become an important destination for the global auto industry It took the financial turmoil in South East
Asia and the slowdown in the Chinese auto market to reinforce the targeting to Indian Market The new interest in
the small car segment also reflects certain amount of bullishness on the part of auto manufacturers about India
Despite projected over capacities--and current losses carmakers continued to queue
up their investments for small car segment To day there are 10 global auto majorsmdashincluding the $13-billion
Suzuki Motor (Japan) the $65-billion Daewoo (South Korea) the $147-billion Ford (US) the $47-billion Fiat
(Italy) and the $168-billion General Motors (US) operating in Indian Market
Chapter 41 The Pre 1997 Automobile Market
As late as 1997 the auto market in India was clearly segmented At the entry level
were MULs 800-cc car--priced between Rs 210-lakh and Rs 245 lakh--and the Omni at Rs 175 lakh At the
next level were the 993-cc Zen--priced at Rs 370 lakh--and the 999-cc Fiat Uno (Rs 362 lakh) Then came the
1300-cc Esteem models--priced between Rs 469 lakh and Rs 595 lakh--the 1498-cc Cielo (Rs 620 lakh) and
the 1598-cc Opel Astra (Rs 752 lakh) followed by premium cars like Mercedes-Benzs E-220 (Rs 22 lakh)
Changing Lanes
Two events have upset the equations in the price-segmented car market Daewoo has
Changed the lanes with the Cielo which is now priced at Rs 490 lakh and competes with the Zens top-end
model (Rs 440 lakh) and the Esteems lower-end version (Rs 469 lakh) Ceilo has created a new value segment
where the price is not proportionate to the size Daewoos strategic response has very clearly redefined
differentiation from price or size to value
22
Hyundai Motors India a subsidiary of the $27-billion Hyundai of South Korea launched
its 999-cc Santro at the Auto Expo 1998 in Delhi The model comes in five variants with the non-air-
conditioned manual transmission model priced at Rs 280 lakh and the semiautomatic air-conditioned GLS
model priced between Rs 315 lakh and Rs 4 lakh ClearlyHyundais strategy is aimed at taking on the market
leader Maruti Udyog Limited But by pricing the deluxe model at Rs 4 lakh it is also bridging the gap between
the small and the middle car segments At present Marutirsquos Esteem LX is priced Rs 70000 more than the
Santro GLS while the Cielo is priced Rs 90000 more
The further entry of new players will only blur the segments New entrants will be
involved in price war to find a foothold in the Indian market Few of the examples include
TELCOs positioning of its 1400-cc Indica car--launched in November 1998 and priced close to Marutirsquos 800-cc
model as a small carand Honda sneaking its 1300-cc City into the segment vacated by the Cielo although it is
an accepted fact that pricing or positioning cannot be done in isolation In a crowded market that must depend on
the available strategic opportunities
By creating new segments companies can broaden their market base increase
capacity utilization levels pre-empt competitors market entry moves and importantly lower costs While Maruti
did that by launching three versions of the Esteem TELCO accomplished it by using a common platform for the
Sumo the Estate and the Sierra models Hyundai is also planning to come to the market with five variants in near
future At high volumes costs can be lowered by more than 20 per cent across variants due to experience curve
effect
Configuring the sticker price for a car in the market today is no more a functional
decision It has become a strategic decision as it identifies the key segmentrsquos response
23
elasticity to the market offer The two key inhibiting factors for the poor response to the auto war fare in Indian
Car Market are basically the low per capita income at $350 (Rs 14000 at current prices) and the high
manufacturing costs A large part of the population expected to graduate from two wheelers to four wheelers has
not responded as they were supposed to during this period of time The domestic auto giant Maruti Udyog
limited still forces the new players to benchmark themselves against its products which roll out from a
depreciated yet high-volume plant It enjoys the fast mover as well as the cost advantage with the higher capacity
utilisation that helps him to cut costs across as more cars you make the cheaper they get
With the worldrsquos second largest and fastest-growing population there is no doubt that Indiarsquos potential in both
economic and population terms and the effect it will have on the auto industry in the next years During the last
two years export from this sector has grown significantly owing mainly to the export of cars and two-three-
wheelers
The industry is characterized by a very high percentage (75) of production in the 23 wheeler sector India ranks
as the largest manufacturer of motorcycles and second largest in manufacturing of scooters in the world India
today is also the second largest manufacturer of tractors as well The industry has intense forward and backward
integration
The Indian automotive industry had experienced an extraordinary growth due to the improvement in the living
standards of the middle class and an increase in their disposable incomes Moreover the liberalization steps such
as relaxation of the foreign exchange and equity regulations reduction of tariffs on imports and refining the
banking policies initiated by the Government of India have played an equally important role in bringing the
Indian Automotive industry to great heights
It is estimated that the sale of passenger cars have tripled compared to their sale in the last five years Thus the
sale of cars has reached a figure of 1 million users and is expected to increase further Its also to be noted that the
24
demand for luxurious models SUVs and mini-cars for family owners have shot up largely due to increase in the
consumers buying capacity
The Indian automotive market
India country fact file 2005
Population 1 080 264388
Per Capita GDP (PPP) $3400
GDP Growth Rate 71
Total automotive sales 2005 1 439604 (889333)
Total automotive production 2005 1 643460 (1 000567)
Market growth 2005 vs 2004 70 (64)
Best sold model PC segment 2004 Maruti Alto (168)
Best sold model LCV segment 2004 Maruti Omni (213)
(passenger cars) (market share in segment)
Source httpwwwsegmentycomIndiahtm
Chapter 42 The Protected Indian Domestic Automobile Sector
MUL which set up shop in 1984 had 10 long years of relative protection to emerge as a formidable competitor
with high volume and a strong brand image in the mind of Indian customers When the industry was deregulated
in 1993 the cost barrier had become so high that new companies could not dare to look at the small car segment
25
Instead they settled for the mid-size segment where both volumes and margins were expected to be high
However a shakeout in the Indian mid-size car segment the slowdown in international auto sales pushed
transnational auto majors into India which have now turned the tide against MULThe present generation small
cars launched recently are more contemporary in terms of both design and technology while Marutis small-car
technology is at least a decade old
Keeping the future growth potential of Indian market in mind the auto majors are prepared to bear losses for the
next 10 years This will help them to gain a good market share the long run and provide breathing space to
counter the strategic moves of the leader Hence the narrowing price differential between the old and the new
small cars is the first call of the auto majors against Maruti in Indian Market If Maruti has to try and match the
features of new generation small cars it would mean additional costs On the contrary if Maruti decides to
hold its price line and add new features it could translate into losses or at least low profits But MUL can still
bank on at least two Suzuki models the proposed 657-cc Cervo C and the current 996-cc Wagon R to battle its
rivals in the future
Chapter 43 The Advent of the Auto Majors
Besides bracing up for losses in the initial years auto majors like Hyundai and Daewoo are banking on exports
too At the moment export may look unattractive because of the South Asian meltdown but in the long run low
production costs and component-manufacturing skills will make India- made cars competitive at global market
place Hence they are looking India as a production base to cater to the growing Asian market by way of
outsourcing from Indian manufacturing base However many a hurdles they have to cross on the journey to
profitability
26
The investments necessary for a large plant are simply huge Daewoo has so far sunk Rs 2700 crore in a
120-lakh-unit-a-year plant Unlike China which has restricted the number of companies India has followed an
open door policy for car manufacturers which has resulted in emergence of fragmented markets with distributed
capacity
An Original Equipment Manufacturer (OEM) needs a minimum economic size of 150 lakh cars a year to attract
vendor interest Daewoo was able to slash the Cielos price as it is cheaper to import components because of the
devaluation of the South Asian currencies The auto majors are lobbying with the government to ease the strict
indigenisation norms in the new automobile policy so that they can import the components from other countries
This will help them to cut the prices and to go head on the market leader particularly in a price responsive market
like that of small car segment
The other argument is that with the given import duty of 103 per cent on Completely Knocked-Down Kits
(CKDs) which is the same as that on Completely Built-up Units (CBUs) and 68 per cent on components the
imports will become costlier and compel companies to localize their manufacture The exposure to currency
fluctuations which crippled the four Japanese light commercial vehicle projects in the late 1980s is also minimal
when a company localizes component manufacture
Besides lean manufacturing techniques like Just-In-Time (JIT) are possible only when the supplier is located
close to the manufacturing unit If Maruti is a success story it is only because it indigenised 85 per cent of its
components within five years of going on-stream
Then theres the question of servicing the replacement market for spares Customers typically expect
components to be available locally and at competitive prices Imports cannot guarantee that but it is a
27
tremendous job to localize components at the right quality and price given the supplier problems in prevalent in
India
An Original Equipment Manufacturerrsquos competitive advantage lies in its marketing skills Having achieved price
and technology parity it can easily woo the consumer with attractive financing schemes and superior after-sales
service Nudged by the competition most auto players have a clutch of schemes to offer Daewoo Motors India
provides interestfree car finance Ford Motor and General Motors have slashed interest rates MULs joint
venture finance company Maruti Countrywide is offering loans at 1350 per cent when the prevailing lending
rate is 17 per cent and above
Chapter 44 The After Sales Service Scenario
After sales service for cars is as critical as showroom deals Maruti services its 2 million customers through an
army of 174 dealers spread across the country It will be impossible for a company to duplicate such
infrastructure particularly with investments in a metro-based showroom going up to Rs 4 crore Margins in
retailing are moving from actual sales to after sales service
The problem of price war is evident with Auto majors as much as with dealers In a bid to woo the customers
dealers particularly in non-prime locations are cutting their margins It will not be surprising if single-brand
dealers eventually turn into multi-brand sellers in future
Doing so will benefit all the three constituents in the marketing chain the OEM the dealer and the buyer The
carmaker can expand his reach without expensive investment the dealer can increase his revenue and the
customer gets a variety of models and brands under one roof in future
The local partner will be the loser in this fierce battle Without the means to make either matching equity or
technological investment the Indian collaborator will be driven off the road
28
It has already happened to the Rs 166-crore DCM which tied up with Daewoo Motors and can happen to both
the Rs 1258-crore Hindustan Motors (Partner General Motors) and the Rs 360657 crore Mahindra amp Mahindra
(Partner Ford Motor)
So they are reconciled to adopting a minority role or becoming auto component vendors This list includes
Siddharth Shrirams Rs 430-crore Siel (Partner Honda) the Kirloskars (Partner Toyota) and the Munjals of the
Rs 2000-crore Hero Group (Partner BMW) And the evidence is compelling eg Hindusthan Motors has a
passive role in its joint venture with General Motors although the Opel Astra is manufactured at HMs Halol plant
in Gujarat The same can be forecasted about Mahindra and Mahindrarsquos joint venture with Ford Motor What can
prolong the life of the joint venture is distribution muscle as it will take at least five years for a transnational auto
major to build a strong distribution channel in this country
By all accounts the auto industry is headed for a glut With an estimated demand for cars to touch 9 lakhs in
2001-2002 the installed capacity will rise to 16 lakhs So the current growth rate in Indian market is not
sustainable There will be at least two years of stagnant or declining demand before the resumption of the growth
trendThere is a projected demand of 1-lakh cars in the mid-segment alone by 2001-2002 And the car numbers
will add up to around 6 lakh a year That will engender a shakeout which is already afoot in the other Asian
markets For instance poor off -take and a consequent build-up of car inventories has led to a fierce price-war in
China
Chapter 45 Market Potential of Indian Automobile Segment
The demand for the small car will continue to drive growth for the next five years Of the total sales of Maruti in
2000-2001around 85 per cent were small cars The Esteems sales dropped in the same period where as the small
cars drove MULs sales So demand for small cars will leap only if certain conditions are fulfilled
29
Rise in the Income Levels In the US auto demand rises by 4 per cent for every 1 per cent increase in the real
Gross Domestic Product but this is irrelevant for India as only the top 150 per cent of the population
can afford a car The demand can shoot up if the income levels of the top 5 per cent continue to rise in future
Level Of Motorization It is stagnant at 170 cars per 1000 people for decades However in the post-liberalization
period the motorization level has leaped to 370 cars per 1000 Although it is still lower than the levels in the
developed markets motorization is bound to rise further in the coming years
Chapter 451 Vehicle Prices
Falling imports and excise duties coupled with competition will continue to boost demand and
the prices are likely to fall further at least in the short run
Chapter 452 Consumer Finance
Over 60 per cent of customers opt for consumer finance That figure could go up if interest
rates continue to fall
Chapter 453 Infrastructure
Traffic congestion and bad roads could deter potential buyers from going for small cars
particularly in small cities of India The future is not very heartening in this aspect
Chapter 454 Product Availability
As manufacturers shift their attention to the small car more and more people will be able to
afford it and demand will only rise in the future period of time
30
Chapter 46 The Future-Indian Automobile
There is a sharp contrast in the buying behavior of Indian Consumer compared to their western counter parts yet
there is no doubt that Indian car market is going to increasingly resemble the latter In the West the industry is
likely to be dominated by three or four major players With a likely demand of 11 lakh cars by 2006 there will be
a few niche players like BMW Mercedes-Benz and Audi with luxury cars to offer Unless car manufacturers
have a large range of vehicle to offer they will be unable to subsidize their costlier models
The market will consolidate to few segments The carmaker has to make diverse models based on diverse and
flexible platforms Products like the stripped-down economy car the sports utility vehicle or the van should be
built on the same platform For the price-sensitive customers there can be a no-frills version a loaded version for
the middle customer and luxury car manufacturers can target the high-end customers
The fortunes of the autoobile industry will continue to hinge on the large price sensitive customers who will
graduate to the higher end of the market over a period of time
Until then the small car will continue to drive demand and most of the car-manufacturers are
gearing up for this eventuality
31
Chapter 5 Company Profile
ldquoTata Motorsrdquo
32
CHAPTER 5 Company ProfileTata Motors
Tata Motors previously known as Tata Engineering and Locomotive Co Ltd (TELCO) is one of the largest
companies in the Tata Group and one of Indias largest business houses Tata Motors is Indias leading
commercial vehicle manufacturer and the third largest passenger car manufacturer The company is the sixth
largest truck manufacturer in the world Tata Motors recently received the Balanced Scorecard Collaborative Hall
of Fame Award for having achieved a significant turnaround of its overall performance A comprehensive quality
improvement and cost cutting initiative in September 2000 has played an important role in the companys
turnaround from a loss of Rs 500 crores in the year ended March 2001 to a profit of Rs 28 crores in the first
quarter of 2002-2003
Tata Engineering and Locomotive Company (TELCO)
Chapter 51 History amp Evolution
Tata Engineering and Locomotive Company Ltd popularly known as Telco was incorporated in 1945 to
manufacture steam locomotives In 1954 the company diversified into automobile manufacturing through a
collaboration with Daimler-Benz for the manufacture of commercial vehicles By the time the collaboration ended
in 1969 Telco had not only become an independent producer of medium commercial vehicles (MCVs) with
negligible import contentbut had developed the capability of designing and developing such vehicles The
Company progressively widened its product range to cover heavy commercial vehicles (HCVs) and light
commercial vehicles (LCVs) implementing one expansion program after another
To sustain the unrelenting pace of its growth Telco added machining press and assembly
33
capacities set up its own forge and foundries and virtually created the countryrsquos automobile ancillary industry
The Company even developed facilities for designing and manufacturing state-of-the-art machine tools material
handling equipment dies and fixtures To accommodate the Companyrsquos growing activity base a large modern
complex was set up at Pune in western India and a new plant became operational at Lucknow in the north of the
country
To provide a business focus for the Companyrsquos main activity areas Telco has created twobusiness unitsrsquo -
Automobiles and Construction Equipment ndash both of which have notched up record-breaking results
Telco today has a domestic market share of 68 in the MCVHCV segment 64 in the LCV segment and 32
in the multi-utility segment Apart from commercial vehicles which range from 1 ton to 35 tons GVW Telcorsquos
automobile products also include passenger vehicles and an extraordinarily popular multi-utility vehicle All these
products have been developed inhouse by the Companyrsquos own RampD Center This Center is equipped with the
latest computeraided design hardware and software enabling the company to respond quickly to changing
customer needs both in India and abroad
Telco has been exporting its products since 1969 and currently exports about a tenth of its
output Export markets include the Middle East Africa and Southeast Asia as well as
developed countries in Europe like France UK and Spain It is intended that exports should account for 20 of
the automobiles sold by the Company
Telcorsquos second line of business Construction Equipment has also grown rapidly and the
Company currently commands a 61 share in the excavator market and 90 in the crawler cranes market in
India The hydraulically operated construction equipment made by the company is in collaboration with Hitachi
34
Construction Machinery Limited of Japan There are ambitious plans for widening the range of excavators made
by the company and for adding new lines of construction equipment A recent addition to the excavator range is
Backhoe Loader
Telco is one of Indias largest private sector companies With a turnover of Rs 6637 billion it is the countrys
leading commercial vehicle manufacturer and the worldrsquos sixth largest automobile company
The widely successful Tata Indica which is Euro 1 and 2 compliant is the countryrsquos first
indigenously designed developed and manufactured passenger car The company also
makes several other passengers vehicles including the Safari the Sumo the Sierra the Tata Estate and the
Tatamobile pick-up
The companyrsquos products have received wide acceptance not only in India but also in markets in the Middle East
Asia Africa and Europe
Chapter 52 Areas of business
The company manufactures medium heavy and light commercial vehicles multi-utility
vehicles and passenger cars It also makes general and special purpose machines for
automotive applications at its machine tool division These include NCCNC horizontal and inline machining
centers flexible manufacturing systems CNC cylindrical grinding machines and robots for welding cutting
painting and other applications
In 1999 the companyrsquos revenues from its four manufacturing plants at three locations in India were Rs 6637
billion ($15735 million) In 1998 they were Rs 7026 billion ($1893 million) (The average exchange rate in
1999 was Rs 4218 to one US dollar)
35
In the year ended 31 March 2000 the companyrsquos total exports were worth about Rs 50553 crore against about
Rs 60078 crore in the previous year
Locations
The companyrsquos manufacturing plants in India are at Jamshedpur in Bihar Pimpri and
Chinchwad near Pune in Maharashtra and Lucknow in Uttar Pradesh A fifth manufacturing facility is being set
up at Dharwad in Karnataka
Collaborations
The Company has technical tie-ups with
bull The Institute of Development in Automotive Engineering SPA Italy for assistance in
small car body design and styling
bull Nachi Fujikoshi Corporation Japan for robots for welding painting and other
automotive applications
bull Le Moteur Moderne France for the development of diesel and petrol engines for
passenger cars and
bull Robert Bausch GmbH Germany for application work on the engine management
system for 4 PL petrol engines
36
Chapter 53 Tata Motors ndashSuccessful Car Indica
TELCO launched Indica when the TATA group was in red Telco chairman Ratan Tata said that the 1400 cc car
Indica would drive the company out of the red
Tata while talking to reporters at the IETF 99 in a videoconference from Mumbai said that the overwhelming
response of over 125 lakh initial bookings for the Indica had come as a surprise It seems we touched the
national chord somewhere as people responded to the fact that this is the first Indian car said Tata Indica is not
the end of the road for Telco when it comes to passenger cars It is just the beginning as there are more to come
said Tata adding that the company was working on another mid-size car after Indica
Telco had to produce 60000 cars a year to break-even The group created two
organizations within Telco one dealing with commercial vehicles and the other with passenger cars The
company under took a major restructuring exercise whereby the passenger car and commercial vehicles divisions
would function as two separate business units Telco had a strategy to go for exports after addressing the initial
requirements of the domestic market
Awards and Recognition
In May 2000 Tata Engineering and Locomotive Company Ltd (Telco) won a national award for successful
indigenous technology used in the Indica car project The award titled National award for successful
commercialization of indigenous technology by an industrial concern for indigenous development and
commercialization of Tata Indica car was presented by the minister for human resource development science and
technology and ocean development
Dr Murli Manohar Joshi
37
In November 1999 Telco was awarded the Department of scientific and industrial research
national award for indigenous design of the Tata Indica It was the first company in India to implement stringent
emission norms well ahead of the mandate dates
Promotions
The Indica advertising made interest for the car go into overdrive The campaign revolved around the premise that
the Indica would not just meet peoples expectations it would exceed them Every advertisement has a story to
tell
Pre launch Campaign
The Indica campaign began in the right earnest in December 1998 It was advertised as the launch of a car that
will spell doom for the small cars It was directly aimed at Maruti 800 The ad line used in the first campaign was
ldquoCar makers will suddenly remember all the thing they forgot to give yourdquo This hinted that Indica would have
more features than any of the existing small cars Indica used the catch lines like ldquo More car per Carrdquo ldquoMore
dreams per carrdquo to suggest that Indica will be bigger in size to the existing small cars yet be in the small car
category It competes with the mid size cars on size and give them a run for their money with its cheaper price
tag
At the launch of the car TELCO claimed that the people would never have to suffer from a small car again and
that the n end of the year (1998) would be the end of the small cars
Launch Campaign
The launch campaign of Indica focussed on the many advantages that it offered over other cars in the same
segment It promised the customers more than the current offerings Its first advertisement carried the following
catch line ldquo50cc moped 100cc bike 800cc car Time you asked for morerdquo
38
It then concentrated its efforts on criticizing the negative aspects of Maruti 800 and highlighted how Indica has
removed those very defects and presented a very sophisticated and modern car to the Indian customer It even
pointed out that the shape of Maruti was very unconventional and that people would prefer the shape of Indica to
Maruti 800 The advertisement read ldquo Box shaped bubble shaped wedge shaped But then Gentlemen prefer
curvesrdquo
The launch campaign also focussed on the roomy interiors of Indica a feature not offered by Maruti at that point
of time Also the expertise of TATA in diesel engines and fuel efficiency of these were the highlight of the launch
campaign of Tata Indica
Post Launch Campaigns
While the Launch campaign focussed on the features of Indica the post launch advertisements focussed on the
superior after sales service and longer warranty periods offered by Indica
Telco was the first company to offer an 18-month warranty period on engine parts The most famous line used
during this campaign was ldquoWe could go on and on about service or give you the one word summary TATArdquo
While their main adversary was the Maruti 800 Telco felt that it could also tap the mid size segment using the
selling point of space given by Indica They carried a campaign which said ldquoForget small cars we even make big
cars feel smallrdquo
It then went on to highlight the fact that Indica was Euro II compliant even before it was legally binding upon car
manufacturers to do so It also highlighted the concrete wall safety test that Indica withstands and tried to
showcase the car as a safe and strong car
39
Chapter 6 COST REDUCTION TECHNIQUES
IN TATA MOTORSrsquoS INDICA
40
Chapter 6 Tata Indica - The Making Of The Small Car
with objective of minimizing costs
The research provides an understanding of the issues concerning the supply chain management system at
Telco in regard to its small car Indica It outlines how Telco built the supply chain for the car by leveraging its
existing competencies and how it transformed itself from an integrated truck manufacturer to an automobile
integrator and from a product-centric company to competence- centric company The case discusses various
components of the supply chain and emphasises how Telco orchestrated them with the objective of minimizing
costs
ldquoTelcorsquos 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 comerdquo
- Business India March 22 1999
In the early 1990s Telcorsquos Chairman Ratan Tata (Tata) was flirting with the idea of developing a small
car By mid-1994 a rudimentary design was in place In 1995 Telco announced that it planned to build a car
which would be priced close to the Maruti 800 shaped like the Zen and spacious as an Ambassador
Producing the new small car ndash Indica ndash represented a different kind of challenge for Telco Should Tata succeed he
would change the face of Telco As a truck-maker Telco was so integrated that it even made it own castings and
forgings As an automaker it would have to focus on the value chain that stretched between raw materials and after-sales
41
service as well as assembling the parts into the complete automobile
For its new venture Telco outsourced 80 of the components (1200 of its 1500-plus parts) from 200-odd vendors To
develop the Indica Telco had to combine the learnings from its predecessors with its own unique supply chain
management strategies to ensure a sustainable low-cost platform
By learning to build and manage a supply chain it would set the ground for leveraging the capabilities of the
automotive component-manufacturers who already operated in its target markets In other words Telco planned
to use its skills as an integrator--bringing together products and services from both upstream and downstream
operations and packaging them for the customer under a brand name in its new venture
Globally a car could be built in 48 months with an investment of US $ 3 billion (Rs 1275 billion) Indica was
built in 31 months on a budget of Rs 17 billion This seemed to have been possible by focussing on the supply
chain
Chapter 61 THE OUTSOURCING STRATEGY
For Telco outsourcing seemed to be one of the most difficult aspects of producing the Indica Unlike global
automobile majors Ford Motors or General Motors which had a global vendor-base that could be replicated on
a smaller scale in India Telco had to create a vendor-base from scratch Moreover it did not have the expertise
either to design a car or to build an engine for it
Against this background Telco had to take its primary lsquomake-or-buyrsquo decisions for the key inputs-design
engine and transmission Telco decided to shop globally for the best deals and use its own expertise to make
42
whatever modifications were needed
(Refer Table I for the components outsourced by Telco)
TABLE I
OUTSOURCING THE COMPONENTS
Components Supplier
5 door hatchback IDEA Italy
Engine Institut Francais du Petrol
France
Assembly Line Nissanrsquos Plant Australia
Presses Mercedes Benz
Pistons and Piston rings India Pistons
Electrical components and fuel injection
systems Lucas-TVS
Steering systems Rane TRW Steering Systems
Clutch facings and rear (drum) brake linings Sundaram Brake Linings (SBL)
Seating Systems Tata-Johnson Controls
Radiators Tata-Toyo
Rear view mirrors Tata-Ficosa
Front and rear bumper dash-board inside
trims Tata-Auto Plastics
Air conditioning kits Subros Ltd
Wind screens and windows Asahi Glass
Fuel lines Imperial Auto
Differential assemblies Sona Steering
43
Sheet metal items JBM Tools
Source Business Today March 22 1999 and December 7 1999
Telco turned to the Italian company IDEA for the product-design It bought the engine from the Institut
Francais du Petrol of France and applied its engineering skills to adapt the engine requirements The transmission
was developed in-house at its Engineering Research Centre (ERC) at Pune Of the Rs 25 billion it spent on
designing the Indica the major share went in buying design tools and training its engineers in new skills Telcorsquos
engineers traveled regularly to the sites of its technology suppliers to receive training before the actual delivery
of the machines
Telco also outsourced its assembly line from Nissanrsquos plant in Australia for just Rs 900 million Telco
transplanted it at its factory at Chikli near Pune which was newly set up for Indica A new assembly line of the
same proportions would have cost at least Rs 4 billion Again of the 3 presses for the Indica only 1 was new
acquired for Rs 900 million while the other 2 were bought second-hand from Mercedes-Benz and modified to
suit the Indica
Telcorsquos engineers and the ERC did the application engineering programming installation and commissioning to
save around 45 of the technology costs The tooling for the car too was supplied internally by Telcorsquos machine
tool division To manage the supply chain better Telco kept the number of suppliers for Indica to just 200 as
compared to about 1000 for trucks Most of the parts were supplied by Telcorsquos traditional suppliersmdash TVS Rane
Group and Tata Auto Component Systems (Taco) who were single source suppliers Pressed parts assemblies
and drive shafts were sourced from single vendors
44
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
Hyundai Motors India a subsidiary of the $27-billion Hyundai of South Korea launched
its 999-cc Santro at the Auto Expo 1998 in Delhi The model comes in five variants with the non-air-
conditioned manual transmission model priced at Rs 280 lakh and the semiautomatic air-conditioned GLS
model priced between Rs 315 lakh and Rs 4 lakh ClearlyHyundais strategy is aimed at taking on the market
leader Maruti Udyog Limited But by pricing the deluxe model at Rs 4 lakh it is also bridging the gap between
the small and the middle car segments At present Marutirsquos Esteem LX is priced Rs 70000 more than the
Santro GLS while the Cielo is priced Rs 90000 more
The further entry of new players will only blur the segments New entrants will be
involved in price war to find a foothold in the Indian market Few of the examples include
TELCOs positioning of its 1400-cc Indica car--launched in November 1998 and priced close to Marutirsquos 800-cc
model as a small carand Honda sneaking its 1300-cc City into the segment vacated by the Cielo although it is
an accepted fact that pricing or positioning cannot be done in isolation In a crowded market that must depend on
the available strategic opportunities
By creating new segments companies can broaden their market base increase
capacity utilization levels pre-empt competitors market entry moves and importantly lower costs While Maruti
did that by launching three versions of the Esteem TELCO accomplished it by using a common platform for the
Sumo the Estate and the Sierra models Hyundai is also planning to come to the market with five variants in near
future At high volumes costs can be lowered by more than 20 per cent across variants due to experience curve
effect
Configuring the sticker price for a car in the market today is no more a functional
decision It has become a strategic decision as it identifies the key segmentrsquos response
23
elasticity to the market offer The two key inhibiting factors for the poor response to the auto war fare in Indian
Car Market are basically the low per capita income at $350 (Rs 14000 at current prices) and the high
manufacturing costs A large part of the population expected to graduate from two wheelers to four wheelers has
not responded as they were supposed to during this period of time The domestic auto giant Maruti Udyog
limited still forces the new players to benchmark themselves against its products which roll out from a
depreciated yet high-volume plant It enjoys the fast mover as well as the cost advantage with the higher capacity
utilisation that helps him to cut costs across as more cars you make the cheaper they get
With the worldrsquos second largest and fastest-growing population there is no doubt that Indiarsquos potential in both
economic and population terms and the effect it will have on the auto industry in the next years During the last
two years export from this sector has grown significantly owing mainly to the export of cars and two-three-
wheelers
The industry is characterized by a very high percentage (75) of production in the 23 wheeler sector India ranks
as the largest manufacturer of motorcycles and second largest in manufacturing of scooters in the world India
today is also the second largest manufacturer of tractors as well The industry has intense forward and backward
integration
The Indian automotive industry had experienced an extraordinary growth due to the improvement in the living
standards of the middle class and an increase in their disposable incomes Moreover the liberalization steps such
as relaxation of the foreign exchange and equity regulations reduction of tariffs on imports and refining the
banking policies initiated by the Government of India have played an equally important role in bringing the
Indian Automotive industry to great heights
It is estimated that the sale of passenger cars have tripled compared to their sale in the last five years Thus the
sale of cars has reached a figure of 1 million users and is expected to increase further Its also to be noted that the
24
demand for luxurious models SUVs and mini-cars for family owners have shot up largely due to increase in the
consumers buying capacity
The Indian automotive market
India country fact file 2005
Population 1 080 264388
Per Capita GDP (PPP) $3400
GDP Growth Rate 71
Total automotive sales 2005 1 439604 (889333)
Total automotive production 2005 1 643460 (1 000567)
Market growth 2005 vs 2004 70 (64)
Best sold model PC segment 2004 Maruti Alto (168)
Best sold model LCV segment 2004 Maruti Omni (213)
(passenger cars) (market share in segment)
Source httpwwwsegmentycomIndiahtm
Chapter 42 The Protected Indian Domestic Automobile Sector
MUL which set up shop in 1984 had 10 long years of relative protection to emerge as a formidable competitor
with high volume and a strong brand image in the mind of Indian customers When the industry was deregulated
in 1993 the cost barrier had become so high that new companies could not dare to look at the small car segment
25
Instead they settled for the mid-size segment where both volumes and margins were expected to be high
However a shakeout in the Indian mid-size car segment the slowdown in international auto sales pushed
transnational auto majors into India which have now turned the tide against MULThe present generation small
cars launched recently are more contemporary in terms of both design and technology while Marutis small-car
technology is at least a decade old
Keeping the future growth potential of Indian market in mind the auto majors are prepared to bear losses for the
next 10 years This will help them to gain a good market share the long run and provide breathing space to
counter the strategic moves of the leader Hence the narrowing price differential between the old and the new
small cars is the first call of the auto majors against Maruti in Indian Market If Maruti has to try and match the
features of new generation small cars it would mean additional costs On the contrary if Maruti decides to
hold its price line and add new features it could translate into losses or at least low profits But MUL can still
bank on at least two Suzuki models the proposed 657-cc Cervo C and the current 996-cc Wagon R to battle its
rivals in the future
Chapter 43 The Advent of the Auto Majors
Besides bracing up for losses in the initial years auto majors like Hyundai and Daewoo are banking on exports
too At the moment export may look unattractive because of the South Asian meltdown but in the long run low
production costs and component-manufacturing skills will make India- made cars competitive at global market
place Hence they are looking India as a production base to cater to the growing Asian market by way of
outsourcing from Indian manufacturing base However many a hurdles they have to cross on the journey to
profitability
26
The investments necessary for a large plant are simply huge Daewoo has so far sunk Rs 2700 crore in a
120-lakh-unit-a-year plant Unlike China which has restricted the number of companies India has followed an
open door policy for car manufacturers which has resulted in emergence of fragmented markets with distributed
capacity
An Original Equipment Manufacturer (OEM) needs a minimum economic size of 150 lakh cars a year to attract
vendor interest Daewoo was able to slash the Cielos price as it is cheaper to import components because of the
devaluation of the South Asian currencies The auto majors are lobbying with the government to ease the strict
indigenisation norms in the new automobile policy so that they can import the components from other countries
This will help them to cut the prices and to go head on the market leader particularly in a price responsive market
like that of small car segment
The other argument is that with the given import duty of 103 per cent on Completely Knocked-Down Kits
(CKDs) which is the same as that on Completely Built-up Units (CBUs) and 68 per cent on components the
imports will become costlier and compel companies to localize their manufacture The exposure to currency
fluctuations which crippled the four Japanese light commercial vehicle projects in the late 1980s is also minimal
when a company localizes component manufacture
Besides lean manufacturing techniques like Just-In-Time (JIT) are possible only when the supplier is located
close to the manufacturing unit If Maruti is a success story it is only because it indigenised 85 per cent of its
components within five years of going on-stream
Then theres the question of servicing the replacement market for spares Customers typically expect
components to be available locally and at competitive prices Imports cannot guarantee that but it is a
27
tremendous job to localize components at the right quality and price given the supplier problems in prevalent in
India
An Original Equipment Manufacturerrsquos competitive advantage lies in its marketing skills Having achieved price
and technology parity it can easily woo the consumer with attractive financing schemes and superior after-sales
service Nudged by the competition most auto players have a clutch of schemes to offer Daewoo Motors India
provides interestfree car finance Ford Motor and General Motors have slashed interest rates MULs joint
venture finance company Maruti Countrywide is offering loans at 1350 per cent when the prevailing lending
rate is 17 per cent and above
Chapter 44 The After Sales Service Scenario
After sales service for cars is as critical as showroom deals Maruti services its 2 million customers through an
army of 174 dealers spread across the country It will be impossible for a company to duplicate such
infrastructure particularly with investments in a metro-based showroom going up to Rs 4 crore Margins in
retailing are moving from actual sales to after sales service
The problem of price war is evident with Auto majors as much as with dealers In a bid to woo the customers
dealers particularly in non-prime locations are cutting their margins It will not be surprising if single-brand
dealers eventually turn into multi-brand sellers in future
Doing so will benefit all the three constituents in the marketing chain the OEM the dealer and the buyer The
carmaker can expand his reach without expensive investment the dealer can increase his revenue and the
customer gets a variety of models and brands under one roof in future
The local partner will be the loser in this fierce battle Without the means to make either matching equity or
technological investment the Indian collaborator will be driven off the road
28
It has already happened to the Rs 166-crore DCM which tied up with Daewoo Motors and can happen to both
the Rs 1258-crore Hindustan Motors (Partner General Motors) and the Rs 360657 crore Mahindra amp Mahindra
(Partner Ford Motor)
So they are reconciled to adopting a minority role or becoming auto component vendors This list includes
Siddharth Shrirams Rs 430-crore Siel (Partner Honda) the Kirloskars (Partner Toyota) and the Munjals of the
Rs 2000-crore Hero Group (Partner BMW) And the evidence is compelling eg Hindusthan Motors has a
passive role in its joint venture with General Motors although the Opel Astra is manufactured at HMs Halol plant
in Gujarat The same can be forecasted about Mahindra and Mahindrarsquos joint venture with Ford Motor What can
prolong the life of the joint venture is distribution muscle as it will take at least five years for a transnational auto
major to build a strong distribution channel in this country
By all accounts the auto industry is headed for a glut With an estimated demand for cars to touch 9 lakhs in
2001-2002 the installed capacity will rise to 16 lakhs So the current growth rate in Indian market is not
sustainable There will be at least two years of stagnant or declining demand before the resumption of the growth
trendThere is a projected demand of 1-lakh cars in the mid-segment alone by 2001-2002 And the car numbers
will add up to around 6 lakh a year That will engender a shakeout which is already afoot in the other Asian
markets For instance poor off -take and a consequent build-up of car inventories has led to a fierce price-war in
China
Chapter 45 Market Potential of Indian Automobile Segment
The demand for the small car will continue to drive growth for the next five years Of the total sales of Maruti in
2000-2001around 85 per cent were small cars The Esteems sales dropped in the same period where as the small
cars drove MULs sales So demand for small cars will leap only if certain conditions are fulfilled
29
Rise in the Income Levels In the US auto demand rises by 4 per cent for every 1 per cent increase in the real
Gross Domestic Product but this is irrelevant for India as only the top 150 per cent of the population
can afford a car The demand can shoot up if the income levels of the top 5 per cent continue to rise in future
Level Of Motorization It is stagnant at 170 cars per 1000 people for decades However in the post-liberalization
period the motorization level has leaped to 370 cars per 1000 Although it is still lower than the levels in the
developed markets motorization is bound to rise further in the coming years
Chapter 451 Vehicle Prices
Falling imports and excise duties coupled with competition will continue to boost demand and
the prices are likely to fall further at least in the short run
Chapter 452 Consumer Finance
Over 60 per cent of customers opt for consumer finance That figure could go up if interest
rates continue to fall
Chapter 453 Infrastructure
Traffic congestion and bad roads could deter potential buyers from going for small cars
particularly in small cities of India The future is not very heartening in this aspect
Chapter 454 Product Availability
As manufacturers shift their attention to the small car more and more people will be able to
afford it and demand will only rise in the future period of time
30
Chapter 46 The Future-Indian Automobile
There is a sharp contrast in the buying behavior of Indian Consumer compared to their western counter parts yet
there is no doubt that Indian car market is going to increasingly resemble the latter In the West the industry is
likely to be dominated by three or four major players With a likely demand of 11 lakh cars by 2006 there will be
a few niche players like BMW Mercedes-Benz and Audi with luxury cars to offer Unless car manufacturers
have a large range of vehicle to offer they will be unable to subsidize their costlier models
The market will consolidate to few segments The carmaker has to make diverse models based on diverse and
flexible platforms Products like the stripped-down economy car the sports utility vehicle or the van should be
built on the same platform For the price-sensitive customers there can be a no-frills version a loaded version for
the middle customer and luxury car manufacturers can target the high-end customers
The fortunes of the autoobile industry will continue to hinge on the large price sensitive customers who will
graduate to the higher end of the market over a period of time
Until then the small car will continue to drive demand and most of the car-manufacturers are
gearing up for this eventuality
31
Chapter 5 Company Profile
ldquoTata Motorsrdquo
32
CHAPTER 5 Company ProfileTata Motors
Tata Motors previously known as Tata Engineering and Locomotive Co Ltd (TELCO) is one of the largest
companies in the Tata Group and one of Indias largest business houses Tata Motors is Indias leading
commercial vehicle manufacturer and the third largest passenger car manufacturer The company is the sixth
largest truck manufacturer in the world Tata Motors recently received the Balanced Scorecard Collaborative Hall
of Fame Award for having achieved a significant turnaround of its overall performance A comprehensive quality
improvement and cost cutting initiative in September 2000 has played an important role in the companys
turnaround from a loss of Rs 500 crores in the year ended March 2001 to a profit of Rs 28 crores in the first
quarter of 2002-2003
Tata Engineering and Locomotive Company (TELCO)
Chapter 51 History amp Evolution
Tata Engineering and Locomotive Company Ltd popularly known as Telco was incorporated in 1945 to
manufacture steam locomotives In 1954 the company diversified into automobile manufacturing through a
collaboration with Daimler-Benz for the manufacture of commercial vehicles By the time the collaboration ended
in 1969 Telco had not only become an independent producer of medium commercial vehicles (MCVs) with
negligible import contentbut had developed the capability of designing and developing such vehicles The
Company progressively widened its product range to cover heavy commercial vehicles (HCVs) and light
commercial vehicles (LCVs) implementing one expansion program after another
To sustain the unrelenting pace of its growth Telco added machining press and assembly
33
capacities set up its own forge and foundries and virtually created the countryrsquos automobile ancillary industry
The Company even developed facilities for designing and manufacturing state-of-the-art machine tools material
handling equipment dies and fixtures To accommodate the Companyrsquos growing activity base a large modern
complex was set up at Pune in western India and a new plant became operational at Lucknow in the north of the
country
To provide a business focus for the Companyrsquos main activity areas Telco has created twobusiness unitsrsquo -
Automobiles and Construction Equipment ndash both of which have notched up record-breaking results
Telco today has a domestic market share of 68 in the MCVHCV segment 64 in the LCV segment and 32
in the multi-utility segment Apart from commercial vehicles which range from 1 ton to 35 tons GVW Telcorsquos
automobile products also include passenger vehicles and an extraordinarily popular multi-utility vehicle All these
products have been developed inhouse by the Companyrsquos own RampD Center This Center is equipped with the
latest computeraided design hardware and software enabling the company to respond quickly to changing
customer needs both in India and abroad
Telco has been exporting its products since 1969 and currently exports about a tenth of its
output Export markets include the Middle East Africa and Southeast Asia as well as
developed countries in Europe like France UK and Spain It is intended that exports should account for 20 of
the automobiles sold by the Company
Telcorsquos second line of business Construction Equipment has also grown rapidly and the
Company currently commands a 61 share in the excavator market and 90 in the crawler cranes market in
India The hydraulically operated construction equipment made by the company is in collaboration with Hitachi
34
Construction Machinery Limited of Japan There are ambitious plans for widening the range of excavators made
by the company and for adding new lines of construction equipment A recent addition to the excavator range is
Backhoe Loader
Telco is one of Indias largest private sector companies With a turnover of Rs 6637 billion it is the countrys
leading commercial vehicle manufacturer and the worldrsquos sixth largest automobile company
The widely successful Tata Indica which is Euro 1 and 2 compliant is the countryrsquos first
indigenously designed developed and manufactured passenger car The company also
makes several other passengers vehicles including the Safari the Sumo the Sierra the Tata Estate and the
Tatamobile pick-up
The companyrsquos products have received wide acceptance not only in India but also in markets in the Middle East
Asia Africa and Europe
Chapter 52 Areas of business
The company manufactures medium heavy and light commercial vehicles multi-utility
vehicles and passenger cars It also makes general and special purpose machines for
automotive applications at its machine tool division These include NCCNC horizontal and inline machining
centers flexible manufacturing systems CNC cylindrical grinding machines and robots for welding cutting
painting and other applications
In 1999 the companyrsquos revenues from its four manufacturing plants at three locations in India were Rs 6637
billion ($15735 million) In 1998 they were Rs 7026 billion ($1893 million) (The average exchange rate in
1999 was Rs 4218 to one US dollar)
35
In the year ended 31 March 2000 the companyrsquos total exports were worth about Rs 50553 crore against about
Rs 60078 crore in the previous year
Locations
The companyrsquos manufacturing plants in India are at Jamshedpur in Bihar Pimpri and
Chinchwad near Pune in Maharashtra and Lucknow in Uttar Pradesh A fifth manufacturing facility is being set
up at Dharwad in Karnataka
Collaborations
The Company has technical tie-ups with
bull The Institute of Development in Automotive Engineering SPA Italy for assistance in
small car body design and styling
bull Nachi Fujikoshi Corporation Japan for robots for welding painting and other
automotive applications
bull Le Moteur Moderne France for the development of diesel and petrol engines for
passenger cars and
bull Robert Bausch GmbH Germany for application work on the engine management
system for 4 PL petrol engines
36
Chapter 53 Tata Motors ndashSuccessful Car Indica
TELCO launched Indica when the TATA group was in red Telco chairman Ratan Tata said that the 1400 cc car
Indica would drive the company out of the red
Tata while talking to reporters at the IETF 99 in a videoconference from Mumbai said that the overwhelming
response of over 125 lakh initial bookings for the Indica had come as a surprise It seems we touched the
national chord somewhere as people responded to the fact that this is the first Indian car said Tata Indica is not
the end of the road for Telco when it comes to passenger cars It is just the beginning as there are more to come
said Tata adding that the company was working on another mid-size car after Indica
Telco had to produce 60000 cars a year to break-even The group created two
organizations within Telco one dealing with commercial vehicles and the other with passenger cars The
company under took a major restructuring exercise whereby the passenger car and commercial vehicles divisions
would function as two separate business units Telco had a strategy to go for exports after addressing the initial
requirements of the domestic market
Awards and Recognition
In May 2000 Tata Engineering and Locomotive Company Ltd (Telco) won a national award for successful
indigenous technology used in the Indica car project The award titled National award for successful
commercialization of indigenous technology by an industrial concern for indigenous development and
commercialization of Tata Indica car was presented by the minister for human resource development science and
technology and ocean development
Dr Murli Manohar Joshi
37
In November 1999 Telco was awarded the Department of scientific and industrial research
national award for indigenous design of the Tata Indica It was the first company in India to implement stringent
emission norms well ahead of the mandate dates
Promotions
The Indica advertising made interest for the car go into overdrive The campaign revolved around the premise that
the Indica would not just meet peoples expectations it would exceed them Every advertisement has a story to
tell
Pre launch Campaign
The Indica campaign began in the right earnest in December 1998 It was advertised as the launch of a car that
will spell doom for the small cars It was directly aimed at Maruti 800 The ad line used in the first campaign was
ldquoCar makers will suddenly remember all the thing they forgot to give yourdquo This hinted that Indica would have
more features than any of the existing small cars Indica used the catch lines like ldquo More car per Carrdquo ldquoMore
dreams per carrdquo to suggest that Indica will be bigger in size to the existing small cars yet be in the small car
category It competes with the mid size cars on size and give them a run for their money with its cheaper price
tag
At the launch of the car TELCO claimed that the people would never have to suffer from a small car again and
that the n end of the year (1998) would be the end of the small cars
Launch Campaign
The launch campaign of Indica focussed on the many advantages that it offered over other cars in the same
segment It promised the customers more than the current offerings Its first advertisement carried the following
catch line ldquo50cc moped 100cc bike 800cc car Time you asked for morerdquo
38
It then concentrated its efforts on criticizing the negative aspects of Maruti 800 and highlighted how Indica has
removed those very defects and presented a very sophisticated and modern car to the Indian customer It even
pointed out that the shape of Maruti was very unconventional and that people would prefer the shape of Indica to
Maruti 800 The advertisement read ldquo Box shaped bubble shaped wedge shaped But then Gentlemen prefer
curvesrdquo
The launch campaign also focussed on the roomy interiors of Indica a feature not offered by Maruti at that point
of time Also the expertise of TATA in diesel engines and fuel efficiency of these were the highlight of the launch
campaign of Tata Indica
Post Launch Campaigns
While the Launch campaign focussed on the features of Indica the post launch advertisements focussed on the
superior after sales service and longer warranty periods offered by Indica
Telco was the first company to offer an 18-month warranty period on engine parts The most famous line used
during this campaign was ldquoWe could go on and on about service or give you the one word summary TATArdquo
While their main adversary was the Maruti 800 Telco felt that it could also tap the mid size segment using the
selling point of space given by Indica They carried a campaign which said ldquoForget small cars we even make big
cars feel smallrdquo
It then went on to highlight the fact that Indica was Euro II compliant even before it was legally binding upon car
manufacturers to do so It also highlighted the concrete wall safety test that Indica withstands and tried to
showcase the car as a safe and strong car
39
Chapter 6 COST REDUCTION TECHNIQUES
IN TATA MOTORSrsquoS INDICA
40
Chapter 6 Tata Indica - The Making Of The Small Car
with objective of minimizing costs
The research provides an understanding of the issues concerning the supply chain management system at
Telco in regard to its small car Indica It outlines how Telco built the supply chain for the car by leveraging its
existing competencies and how it transformed itself from an integrated truck manufacturer to an automobile
integrator and from a product-centric company to competence- centric company The case discusses various
components of the supply chain and emphasises how Telco orchestrated them with the objective of minimizing
costs
ldquoTelcorsquos 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 comerdquo
- Business India March 22 1999
In the early 1990s Telcorsquos Chairman Ratan Tata (Tata) was flirting with the idea of developing a small
car By mid-1994 a rudimentary design was in place In 1995 Telco announced that it planned to build a car
which would be priced close to the Maruti 800 shaped like the Zen and spacious as an Ambassador
Producing the new small car ndash Indica ndash represented a different kind of challenge for Telco Should Tata succeed he
would change the face of Telco As a truck-maker Telco was so integrated that it even made it own castings and
forgings As an automaker it would have to focus on the value chain that stretched between raw materials and after-sales
41
service as well as assembling the parts into the complete automobile
For its new venture Telco outsourced 80 of the components (1200 of its 1500-plus parts) from 200-odd vendors To
develop the Indica Telco had to combine the learnings from its predecessors with its own unique supply chain
management strategies to ensure a sustainable low-cost platform
By learning to build and manage a supply chain it would set the ground for leveraging the capabilities of the
automotive component-manufacturers who already operated in its target markets In other words Telco planned
to use its skills as an integrator--bringing together products and services from both upstream and downstream
operations and packaging them for the customer under a brand name in its new venture
Globally a car could be built in 48 months with an investment of US $ 3 billion (Rs 1275 billion) Indica was
built in 31 months on a budget of Rs 17 billion This seemed to have been possible by focussing on the supply
chain
Chapter 61 THE OUTSOURCING STRATEGY
For Telco outsourcing seemed to be one of the most difficult aspects of producing the Indica Unlike global
automobile majors Ford Motors or General Motors which had a global vendor-base that could be replicated on
a smaller scale in India Telco had to create a vendor-base from scratch Moreover it did not have the expertise
either to design a car or to build an engine for it
Against this background Telco had to take its primary lsquomake-or-buyrsquo decisions for the key inputs-design
engine and transmission Telco decided to shop globally for the best deals and use its own expertise to make
42
whatever modifications were needed
(Refer Table I for the components outsourced by Telco)
TABLE I
OUTSOURCING THE COMPONENTS
Components Supplier
5 door hatchback IDEA Italy
Engine Institut Francais du Petrol
France
Assembly Line Nissanrsquos Plant Australia
Presses Mercedes Benz
Pistons and Piston rings India Pistons
Electrical components and fuel injection
systems Lucas-TVS
Steering systems Rane TRW Steering Systems
Clutch facings and rear (drum) brake linings Sundaram Brake Linings (SBL)
Seating Systems Tata-Johnson Controls
Radiators Tata-Toyo
Rear view mirrors Tata-Ficosa
Front and rear bumper dash-board inside
trims Tata-Auto Plastics
Air conditioning kits Subros Ltd
Wind screens and windows Asahi Glass
Fuel lines Imperial Auto
Differential assemblies Sona Steering
43
Sheet metal items JBM Tools
Source Business Today March 22 1999 and December 7 1999
Telco turned to the Italian company IDEA for the product-design It bought the engine from the Institut
Francais du Petrol of France and applied its engineering skills to adapt the engine requirements The transmission
was developed in-house at its Engineering Research Centre (ERC) at Pune Of the Rs 25 billion it spent on
designing the Indica the major share went in buying design tools and training its engineers in new skills Telcorsquos
engineers traveled regularly to the sites of its technology suppliers to receive training before the actual delivery
of the machines
Telco also outsourced its assembly line from Nissanrsquos plant in Australia for just Rs 900 million Telco
transplanted it at its factory at Chikli near Pune which was newly set up for Indica A new assembly line of the
same proportions would have cost at least Rs 4 billion Again of the 3 presses for the Indica only 1 was new
acquired for Rs 900 million while the other 2 were bought second-hand from Mercedes-Benz and modified to
suit the Indica
Telcorsquos engineers and the ERC did the application engineering programming installation and commissioning to
save around 45 of the technology costs The tooling for the car too was supplied internally by Telcorsquos machine
tool division To manage the supply chain better Telco kept the number of suppliers for Indica to just 200 as
compared to about 1000 for trucks Most of the parts were supplied by Telcorsquos traditional suppliersmdash TVS Rane
Group and Tata Auto Component Systems (Taco) who were single source suppliers Pressed parts assemblies
and drive shafts were sourced from single vendors
44
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
elasticity to the market offer The two key inhibiting factors for the poor response to the auto war fare in Indian
Car Market are basically the low per capita income at $350 (Rs 14000 at current prices) and the high
manufacturing costs A large part of the population expected to graduate from two wheelers to four wheelers has
not responded as they were supposed to during this period of time The domestic auto giant Maruti Udyog
limited still forces the new players to benchmark themselves against its products which roll out from a
depreciated yet high-volume plant It enjoys the fast mover as well as the cost advantage with the higher capacity
utilisation that helps him to cut costs across as more cars you make the cheaper they get
With the worldrsquos second largest and fastest-growing population there is no doubt that Indiarsquos potential in both
economic and population terms and the effect it will have on the auto industry in the next years During the last
two years export from this sector has grown significantly owing mainly to the export of cars and two-three-
wheelers
The industry is characterized by a very high percentage (75) of production in the 23 wheeler sector India ranks
as the largest manufacturer of motorcycles and second largest in manufacturing of scooters in the world India
today is also the second largest manufacturer of tractors as well The industry has intense forward and backward
integration
The Indian automotive industry had experienced an extraordinary growth due to the improvement in the living
standards of the middle class and an increase in their disposable incomes Moreover the liberalization steps such
as relaxation of the foreign exchange and equity regulations reduction of tariffs on imports and refining the
banking policies initiated by the Government of India have played an equally important role in bringing the
Indian Automotive industry to great heights
It is estimated that the sale of passenger cars have tripled compared to their sale in the last five years Thus the
sale of cars has reached a figure of 1 million users and is expected to increase further Its also to be noted that the
24
demand for luxurious models SUVs and mini-cars for family owners have shot up largely due to increase in the
consumers buying capacity
The Indian automotive market
India country fact file 2005
Population 1 080 264388
Per Capita GDP (PPP) $3400
GDP Growth Rate 71
Total automotive sales 2005 1 439604 (889333)
Total automotive production 2005 1 643460 (1 000567)
Market growth 2005 vs 2004 70 (64)
Best sold model PC segment 2004 Maruti Alto (168)
Best sold model LCV segment 2004 Maruti Omni (213)
(passenger cars) (market share in segment)
Source httpwwwsegmentycomIndiahtm
Chapter 42 The Protected Indian Domestic Automobile Sector
MUL which set up shop in 1984 had 10 long years of relative protection to emerge as a formidable competitor
with high volume and a strong brand image in the mind of Indian customers When the industry was deregulated
in 1993 the cost barrier had become so high that new companies could not dare to look at the small car segment
25
Instead they settled for the mid-size segment where both volumes and margins were expected to be high
However a shakeout in the Indian mid-size car segment the slowdown in international auto sales pushed
transnational auto majors into India which have now turned the tide against MULThe present generation small
cars launched recently are more contemporary in terms of both design and technology while Marutis small-car
technology is at least a decade old
Keeping the future growth potential of Indian market in mind the auto majors are prepared to bear losses for the
next 10 years This will help them to gain a good market share the long run and provide breathing space to
counter the strategic moves of the leader Hence the narrowing price differential between the old and the new
small cars is the first call of the auto majors against Maruti in Indian Market If Maruti has to try and match the
features of new generation small cars it would mean additional costs On the contrary if Maruti decides to
hold its price line and add new features it could translate into losses or at least low profits But MUL can still
bank on at least two Suzuki models the proposed 657-cc Cervo C and the current 996-cc Wagon R to battle its
rivals in the future
Chapter 43 The Advent of the Auto Majors
Besides bracing up for losses in the initial years auto majors like Hyundai and Daewoo are banking on exports
too At the moment export may look unattractive because of the South Asian meltdown but in the long run low
production costs and component-manufacturing skills will make India- made cars competitive at global market
place Hence they are looking India as a production base to cater to the growing Asian market by way of
outsourcing from Indian manufacturing base However many a hurdles they have to cross on the journey to
profitability
26
The investments necessary for a large plant are simply huge Daewoo has so far sunk Rs 2700 crore in a
120-lakh-unit-a-year plant Unlike China which has restricted the number of companies India has followed an
open door policy for car manufacturers which has resulted in emergence of fragmented markets with distributed
capacity
An Original Equipment Manufacturer (OEM) needs a minimum economic size of 150 lakh cars a year to attract
vendor interest Daewoo was able to slash the Cielos price as it is cheaper to import components because of the
devaluation of the South Asian currencies The auto majors are lobbying with the government to ease the strict
indigenisation norms in the new automobile policy so that they can import the components from other countries
This will help them to cut the prices and to go head on the market leader particularly in a price responsive market
like that of small car segment
The other argument is that with the given import duty of 103 per cent on Completely Knocked-Down Kits
(CKDs) which is the same as that on Completely Built-up Units (CBUs) and 68 per cent on components the
imports will become costlier and compel companies to localize their manufacture The exposure to currency
fluctuations which crippled the four Japanese light commercial vehicle projects in the late 1980s is also minimal
when a company localizes component manufacture
Besides lean manufacturing techniques like Just-In-Time (JIT) are possible only when the supplier is located
close to the manufacturing unit If Maruti is a success story it is only because it indigenised 85 per cent of its
components within five years of going on-stream
Then theres the question of servicing the replacement market for spares Customers typically expect
components to be available locally and at competitive prices Imports cannot guarantee that but it is a
27
tremendous job to localize components at the right quality and price given the supplier problems in prevalent in
India
An Original Equipment Manufacturerrsquos competitive advantage lies in its marketing skills Having achieved price
and technology parity it can easily woo the consumer with attractive financing schemes and superior after-sales
service Nudged by the competition most auto players have a clutch of schemes to offer Daewoo Motors India
provides interestfree car finance Ford Motor and General Motors have slashed interest rates MULs joint
venture finance company Maruti Countrywide is offering loans at 1350 per cent when the prevailing lending
rate is 17 per cent and above
Chapter 44 The After Sales Service Scenario
After sales service for cars is as critical as showroom deals Maruti services its 2 million customers through an
army of 174 dealers spread across the country It will be impossible for a company to duplicate such
infrastructure particularly with investments in a metro-based showroom going up to Rs 4 crore Margins in
retailing are moving from actual sales to after sales service
The problem of price war is evident with Auto majors as much as with dealers In a bid to woo the customers
dealers particularly in non-prime locations are cutting their margins It will not be surprising if single-brand
dealers eventually turn into multi-brand sellers in future
Doing so will benefit all the three constituents in the marketing chain the OEM the dealer and the buyer The
carmaker can expand his reach without expensive investment the dealer can increase his revenue and the
customer gets a variety of models and brands under one roof in future
The local partner will be the loser in this fierce battle Without the means to make either matching equity or
technological investment the Indian collaborator will be driven off the road
28
It has already happened to the Rs 166-crore DCM which tied up with Daewoo Motors and can happen to both
the Rs 1258-crore Hindustan Motors (Partner General Motors) and the Rs 360657 crore Mahindra amp Mahindra
(Partner Ford Motor)
So they are reconciled to adopting a minority role or becoming auto component vendors This list includes
Siddharth Shrirams Rs 430-crore Siel (Partner Honda) the Kirloskars (Partner Toyota) and the Munjals of the
Rs 2000-crore Hero Group (Partner BMW) And the evidence is compelling eg Hindusthan Motors has a
passive role in its joint venture with General Motors although the Opel Astra is manufactured at HMs Halol plant
in Gujarat The same can be forecasted about Mahindra and Mahindrarsquos joint venture with Ford Motor What can
prolong the life of the joint venture is distribution muscle as it will take at least five years for a transnational auto
major to build a strong distribution channel in this country
By all accounts the auto industry is headed for a glut With an estimated demand for cars to touch 9 lakhs in
2001-2002 the installed capacity will rise to 16 lakhs So the current growth rate in Indian market is not
sustainable There will be at least two years of stagnant or declining demand before the resumption of the growth
trendThere is a projected demand of 1-lakh cars in the mid-segment alone by 2001-2002 And the car numbers
will add up to around 6 lakh a year That will engender a shakeout which is already afoot in the other Asian
markets For instance poor off -take and a consequent build-up of car inventories has led to a fierce price-war in
China
Chapter 45 Market Potential of Indian Automobile Segment
The demand for the small car will continue to drive growth for the next five years Of the total sales of Maruti in
2000-2001around 85 per cent were small cars The Esteems sales dropped in the same period where as the small
cars drove MULs sales So demand for small cars will leap only if certain conditions are fulfilled
29
Rise in the Income Levels In the US auto demand rises by 4 per cent for every 1 per cent increase in the real
Gross Domestic Product but this is irrelevant for India as only the top 150 per cent of the population
can afford a car The demand can shoot up if the income levels of the top 5 per cent continue to rise in future
Level Of Motorization It is stagnant at 170 cars per 1000 people for decades However in the post-liberalization
period the motorization level has leaped to 370 cars per 1000 Although it is still lower than the levels in the
developed markets motorization is bound to rise further in the coming years
Chapter 451 Vehicle Prices
Falling imports and excise duties coupled with competition will continue to boost demand and
the prices are likely to fall further at least in the short run
Chapter 452 Consumer Finance
Over 60 per cent of customers opt for consumer finance That figure could go up if interest
rates continue to fall
Chapter 453 Infrastructure
Traffic congestion and bad roads could deter potential buyers from going for small cars
particularly in small cities of India The future is not very heartening in this aspect
Chapter 454 Product Availability
As manufacturers shift their attention to the small car more and more people will be able to
afford it and demand will only rise in the future period of time
30
Chapter 46 The Future-Indian Automobile
There is a sharp contrast in the buying behavior of Indian Consumer compared to their western counter parts yet
there is no doubt that Indian car market is going to increasingly resemble the latter In the West the industry is
likely to be dominated by three or four major players With a likely demand of 11 lakh cars by 2006 there will be
a few niche players like BMW Mercedes-Benz and Audi with luxury cars to offer Unless car manufacturers
have a large range of vehicle to offer they will be unable to subsidize their costlier models
The market will consolidate to few segments The carmaker has to make diverse models based on diverse and
flexible platforms Products like the stripped-down economy car the sports utility vehicle or the van should be
built on the same platform For the price-sensitive customers there can be a no-frills version a loaded version for
the middle customer and luxury car manufacturers can target the high-end customers
The fortunes of the autoobile industry will continue to hinge on the large price sensitive customers who will
graduate to the higher end of the market over a period of time
Until then the small car will continue to drive demand and most of the car-manufacturers are
gearing up for this eventuality
31
Chapter 5 Company Profile
ldquoTata Motorsrdquo
32
CHAPTER 5 Company ProfileTata Motors
Tata Motors previously known as Tata Engineering and Locomotive Co Ltd (TELCO) is one of the largest
companies in the Tata Group and one of Indias largest business houses Tata Motors is Indias leading
commercial vehicle manufacturer and the third largest passenger car manufacturer The company is the sixth
largest truck manufacturer in the world Tata Motors recently received the Balanced Scorecard Collaborative Hall
of Fame Award for having achieved a significant turnaround of its overall performance A comprehensive quality
improvement and cost cutting initiative in September 2000 has played an important role in the companys
turnaround from a loss of Rs 500 crores in the year ended March 2001 to a profit of Rs 28 crores in the first
quarter of 2002-2003
Tata Engineering and Locomotive Company (TELCO)
Chapter 51 History amp Evolution
Tata Engineering and Locomotive Company Ltd popularly known as Telco was incorporated in 1945 to
manufacture steam locomotives In 1954 the company diversified into automobile manufacturing through a
collaboration with Daimler-Benz for the manufacture of commercial vehicles By the time the collaboration ended
in 1969 Telco had not only become an independent producer of medium commercial vehicles (MCVs) with
negligible import contentbut had developed the capability of designing and developing such vehicles The
Company progressively widened its product range to cover heavy commercial vehicles (HCVs) and light
commercial vehicles (LCVs) implementing one expansion program after another
To sustain the unrelenting pace of its growth Telco added machining press and assembly
33
capacities set up its own forge and foundries and virtually created the countryrsquos automobile ancillary industry
The Company even developed facilities for designing and manufacturing state-of-the-art machine tools material
handling equipment dies and fixtures To accommodate the Companyrsquos growing activity base a large modern
complex was set up at Pune in western India and a new plant became operational at Lucknow in the north of the
country
To provide a business focus for the Companyrsquos main activity areas Telco has created twobusiness unitsrsquo -
Automobiles and Construction Equipment ndash both of which have notched up record-breaking results
Telco today has a domestic market share of 68 in the MCVHCV segment 64 in the LCV segment and 32
in the multi-utility segment Apart from commercial vehicles which range from 1 ton to 35 tons GVW Telcorsquos
automobile products also include passenger vehicles and an extraordinarily popular multi-utility vehicle All these
products have been developed inhouse by the Companyrsquos own RampD Center This Center is equipped with the
latest computeraided design hardware and software enabling the company to respond quickly to changing
customer needs both in India and abroad
Telco has been exporting its products since 1969 and currently exports about a tenth of its
output Export markets include the Middle East Africa and Southeast Asia as well as
developed countries in Europe like France UK and Spain It is intended that exports should account for 20 of
the automobiles sold by the Company
Telcorsquos second line of business Construction Equipment has also grown rapidly and the
Company currently commands a 61 share in the excavator market and 90 in the crawler cranes market in
India The hydraulically operated construction equipment made by the company is in collaboration with Hitachi
34
Construction Machinery Limited of Japan There are ambitious plans for widening the range of excavators made
by the company and for adding new lines of construction equipment A recent addition to the excavator range is
Backhoe Loader
Telco is one of Indias largest private sector companies With a turnover of Rs 6637 billion it is the countrys
leading commercial vehicle manufacturer and the worldrsquos sixth largest automobile company
The widely successful Tata Indica which is Euro 1 and 2 compliant is the countryrsquos first
indigenously designed developed and manufactured passenger car The company also
makes several other passengers vehicles including the Safari the Sumo the Sierra the Tata Estate and the
Tatamobile pick-up
The companyrsquos products have received wide acceptance not only in India but also in markets in the Middle East
Asia Africa and Europe
Chapter 52 Areas of business
The company manufactures medium heavy and light commercial vehicles multi-utility
vehicles and passenger cars It also makes general and special purpose machines for
automotive applications at its machine tool division These include NCCNC horizontal and inline machining
centers flexible manufacturing systems CNC cylindrical grinding machines and robots for welding cutting
painting and other applications
In 1999 the companyrsquos revenues from its four manufacturing plants at three locations in India were Rs 6637
billion ($15735 million) In 1998 they were Rs 7026 billion ($1893 million) (The average exchange rate in
1999 was Rs 4218 to one US dollar)
35
In the year ended 31 March 2000 the companyrsquos total exports were worth about Rs 50553 crore against about
Rs 60078 crore in the previous year
Locations
The companyrsquos manufacturing plants in India are at Jamshedpur in Bihar Pimpri and
Chinchwad near Pune in Maharashtra and Lucknow in Uttar Pradesh A fifth manufacturing facility is being set
up at Dharwad in Karnataka
Collaborations
The Company has technical tie-ups with
bull The Institute of Development in Automotive Engineering SPA Italy for assistance in
small car body design and styling
bull Nachi Fujikoshi Corporation Japan for robots for welding painting and other
automotive applications
bull Le Moteur Moderne France for the development of diesel and petrol engines for
passenger cars and
bull Robert Bausch GmbH Germany for application work on the engine management
system for 4 PL petrol engines
36
Chapter 53 Tata Motors ndashSuccessful Car Indica
TELCO launched Indica when the TATA group was in red Telco chairman Ratan Tata said that the 1400 cc car
Indica would drive the company out of the red
Tata while talking to reporters at the IETF 99 in a videoconference from Mumbai said that the overwhelming
response of over 125 lakh initial bookings for the Indica had come as a surprise It seems we touched the
national chord somewhere as people responded to the fact that this is the first Indian car said Tata Indica is not
the end of the road for Telco when it comes to passenger cars It is just the beginning as there are more to come
said Tata adding that the company was working on another mid-size car after Indica
Telco had to produce 60000 cars a year to break-even The group created two
organizations within Telco one dealing with commercial vehicles and the other with passenger cars The
company under took a major restructuring exercise whereby the passenger car and commercial vehicles divisions
would function as two separate business units Telco had a strategy to go for exports after addressing the initial
requirements of the domestic market
Awards and Recognition
In May 2000 Tata Engineering and Locomotive Company Ltd (Telco) won a national award for successful
indigenous technology used in the Indica car project The award titled National award for successful
commercialization of indigenous technology by an industrial concern for indigenous development and
commercialization of Tata Indica car was presented by the minister for human resource development science and
technology and ocean development
Dr Murli Manohar Joshi
37
In November 1999 Telco was awarded the Department of scientific and industrial research
national award for indigenous design of the Tata Indica It was the first company in India to implement stringent
emission norms well ahead of the mandate dates
Promotions
The Indica advertising made interest for the car go into overdrive The campaign revolved around the premise that
the Indica would not just meet peoples expectations it would exceed them Every advertisement has a story to
tell
Pre launch Campaign
The Indica campaign began in the right earnest in December 1998 It was advertised as the launch of a car that
will spell doom for the small cars It was directly aimed at Maruti 800 The ad line used in the first campaign was
ldquoCar makers will suddenly remember all the thing they forgot to give yourdquo This hinted that Indica would have
more features than any of the existing small cars Indica used the catch lines like ldquo More car per Carrdquo ldquoMore
dreams per carrdquo to suggest that Indica will be bigger in size to the existing small cars yet be in the small car
category It competes with the mid size cars on size and give them a run for their money with its cheaper price
tag
At the launch of the car TELCO claimed that the people would never have to suffer from a small car again and
that the n end of the year (1998) would be the end of the small cars
Launch Campaign
The launch campaign of Indica focussed on the many advantages that it offered over other cars in the same
segment It promised the customers more than the current offerings Its first advertisement carried the following
catch line ldquo50cc moped 100cc bike 800cc car Time you asked for morerdquo
38
It then concentrated its efforts on criticizing the negative aspects of Maruti 800 and highlighted how Indica has
removed those very defects and presented a very sophisticated and modern car to the Indian customer It even
pointed out that the shape of Maruti was very unconventional and that people would prefer the shape of Indica to
Maruti 800 The advertisement read ldquo Box shaped bubble shaped wedge shaped But then Gentlemen prefer
curvesrdquo
The launch campaign also focussed on the roomy interiors of Indica a feature not offered by Maruti at that point
of time Also the expertise of TATA in diesel engines and fuel efficiency of these were the highlight of the launch
campaign of Tata Indica
Post Launch Campaigns
While the Launch campaign focussed on the features of Indica the post launch advertisements focussed on the
superior after sales service and longer warranty periods offered by Indica
Telco was the first company to offer an 18-month warranty period on engine parts The most famous line used
during this campaign was ldquoWe could go on and on about service or give you the one word summary TATArdquo
While their main adversary was the Maruti 800 Telco felt that it could also tap the mid size segment using the
selling point of space given by Indica They carried a campaign which said ldquoForget small cars we even make big
cars feel smallrdquo
It then went on to highlight the fact that Indica was Euro II compliant even before it was legally binding upon car
manufacturers to do so It also highlighted the concrete wall safety test that Indica withstands and tried to
showcase the car as a safe and strong car
39
Chapter 6 COST REDUCTION TECHNIQUES
IN TATA MOTORSrsquoS INDICA
40
Chapter 6 Tata Indica - The Making Of The Small Car
with objective of minimizing costs
The research provides an understanding of the issues concerning the supply chain management system at
Telco in regard to its small car Indica It outlines how Telco built the supply chain for the car by leveraging its
existing competencies and how it transformed itself from an integrated truck manufacturer to an automobile
integrator and from a product-centric company to competence- centric company The case discusses various
components of the supply chain and emphasises how Telco orchestrated them with the objective of minimizing
costs
ldquoTelcorsquos 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 comerdquo
- Business India March 22 1999
In the early 1990s Telcorsquos Chairman Ratan Tata (Tata) was flirting with the idea of developing a small
car By mid-1994 a rudimentary design was in place In 1995 Telco announced that it planned to build a car
which would be priced close to the Maruti 800 shaped like the Zen and spacious as an Ambassador
Producing the new small car ndash Indica ndash represented a different kind of challenge for Telco Should Tata succeed he
would change the face of Telco As a truck-maker Telco was so integrated that it even made it own castings and
forgings As an automaker it would have to focus on the value chain that stretched between raw materials and after-sales
41
service as well as assembling the parts into the complete automobile
For its new venture Telco outsourced 80 of the components (1200 of its 1500-plus parts) from 200-odd vendors To
develop the Indica Telco had to combine the learnings from its predecessors with its own unique supply chain
management strategies to ensure a sustainable low-cost platform
By learning to build and manage a supply chain it would set the ground for leveraging the capabilities of the
automotive component-manufacturers who already operated in its target markets In other words Telco planned
to use its skills as an integrator--bringing together products and services from both upstream and downstream
operations and packaging them for the customer under a brand name in its new venture
Globally a car could be built in 48 months with an investment of US $ 3 billion (Rs 1275 billion) Indica was
built in 31 months on a budget of Rs 17 billion This seemed to have been possible by focussing on the supply
chain
Chapter 61 THE OUTSOURCING STRATEGY
For Telco outsourcing seemed to be one of the most difficult aspects of producing the Indica Unlike global
automobile majors Ford Motors or General Motors which had a global vendor-base that could be replicated on
a smaller scale in India Telco had to create a vendor-base from scratch Moreover it did not have the expertise
either to design a car or to build an engine for it
Against this background Telco had to take its primary lsquomake-or-buyrsquo decisions for the key inputs-design
engine and transmission Telco decided to shop globally for the best deals and use its own expertise to make
42
whatever modifications were needed
(Refer Table I for the components outsourced by Telco)
TABLE I
OUTSOURCING THE COMPONENTS
Components Supplier
5 door hatchback IDEA Italy
Engine Institut Francais du Petrol
France
Assembly Line Nissanrsquos Plant Australia
Presses Mercedes Benz
Pistons and Piston rings India Pistons
Electrical components and fuel injection
systems Lucas-TVS
Steering systems Rane TRW Steering Systems
Clutch facings and rear (drum) brake linings Sundaram Brake Linings (SBL)
Seating Systems Tata-Johnson Controls
Radiators Tata-Toyo
Rear view mirrors Tata-Ficosa
Front and rear bumper dash-board inside
trims Tata-Auto Plastics
Air conditioning kits Subros Ltd
Wind screens and windows Asahi Glass
Fuel lines Imperial Auto
Differential assemblies Sona Steering
43
Sheet metal items JBM Tools
Source Business Today March 22 1999 and December 7 1999
Telco turned to the Italian company IDEA for the product-design It bought the engine from the Institut
Francais du Petrol of France and applied its engineering skills to adapt the engine requirements The transmission
was developed in-house at its Engineering Research Centre (ERC) at Pune Of the Rs 25 billion it spent on
designing the Indica the major share went in buying design tools and training its engineers in new skills Telcorsquos
engineers traveled regularly to the sites of its technology suppliers to receive training before the actual delivery
of the machines
Telco also outsourced its assembly line from Nissanrsquos plant in Australia for just Rs 900 million Telco
transplanted it at its factory at Chikli near Pune which was newly set up for Indica A new assembly line of the
same proportions would have cost at least Rs 4 billion Again of the 3 presses for the Indica only 1 was new
acquired for Rs 900 million while the other 2 were bought second-hand from Mercedes-Benz and modified to
suit the Indica
Telcorsquos engineers and the ERC did the application engineering programming installation and commissioning to
save around 45 of the technology costs The tooling for the car too was supplied internally by Telcorsquos machine
tool division To manage the supply chain better Telco kept the number of suppliers for Indica to just 200 as
compared to about 1000 for trucks Most of the parts were supplied by Telcorsquos traditional suppliersmdash TVS Rane
Group and Tata Auto Component Systems (Taco) who were single source suppliers Pressed parts assemblies
and drive shafts were sourced from single vendors
44
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
demand for luxurious models SUVs and mini-cars for family owners have shot up largely due to increase in the
consumers buying capacity
The Indian automotive market
India country fact file 2005
Population 1 080 264388
Per Capita GDP (PPP) $3400
GDP Growth Rate 71
Total automotive sales 2005 1 439604 (889333)
Total automotive production 2005 1 643460 (1 000567)
Market growth 2005 vs 2004 70 (64)
Best sold model PC segment 2004 Maruti Alto (168)
Best sold model LCV segment 2004 Maruti Omni (213)
(passenger cars) (market share in segment)
Source httpwwwsegmentycomIndiahtm
Chapter 42 The Protected Indian Domestic Automobile Sector
MUL which set up shop in 1984 had 10 long years of relative protection to emerge as a formidable competitor
with high volume and a strong brand image in the mind of Indian customers When the industry was deregulated
in 1993 the cost barrier had become so high that new companies could not dare to look at the small car segment
25
Instead they settled for the mid-size segment where both volumes and margins were expected to be high
However a shakeout in the Indian mid-size car segment the slowdown in international auto sales pushed
transnational auto majors into India which have now turned the tide against MULThe present generation small
cars launched recently are more contemporary in terms of both design and technology while Marutis small-car
technology is at least a decade old
Keeping the future growth potential of Indian market in mind the auto majors are prepared to bear losses for the
next 10 years This will help them to gain a good market share the long run and provide breathing space to
counter the strategic moves of the leader Hence the narrowing price differential between the old and the new
small cars is the first call of the auto majors against Maruti in Indian Market If Maruti has to try and match the
features of new generation small cars it would mean additional costs On the contrary if Maruti decides to
hold its price line and add new features it could translate into losses or at least low profits But MUL can still
bank on at least two Suzuki models the proposed 657-cc Cervo C and the current 996-cc Wagon R to battle its
rivals in the future
Chapter 43 The Advent of the Auto Majors
Besides bracing up for losses in the initial years auto majors like Hyundai and Daewoo are banking on exports
too At the moment export may look unattractive because of the South Asian meltdown but in the long run low
production costs and component-manufacturing skills will make India- made cars competitive at global market
place Hence they are looking India as a production base to cater to the growing Asian market by way of
outsourcing from Indian manufacturing base However many a hurdles they have to cross on the journey to
profitability
26
The investments necessary for a large plant are simply huge Daewoo has so far sunk Rs 2700 crore in a
120-lakh-unit-a-year plant Unlike China which has restricted the number of companies India has followed an
open door policy for car manufacturers which has resulted in emergence of fragmented markets with distributed
capacity
An Original Equipment Manufacturer (OEM) needs a minimum economic size of 150 lakh cars a year to attract
vendor interest Daewoo was able to slash the Cielos price as it is cheaper to import components because of the
devaluation of the South Asian currencies The auto majors are lobbying with the government to ease the strict
indigenisation norms in the new automobile policy so that they can import the components from other countries
This will help them to cut the prices and to go head on the market leader particularly in a price responsive market
like that of small car segment
The other argument is that with the given import duty of 103 per cent on Completely Knocked-Down Kits
(CKDs) which is the same as that on Completely Built-up Units (CBUs) and 68 per cent on components the
imports will become costlier and compel companies to localize their manufacture The exposure to currency
fluctuations which crippled the four Japanese light commercial vehicle projects in the late 1980s is also minimal
when a company localizes component manufacture
Besides lean manufacturing techniques like Just-In-Time (JIT) are possible only when the supplier is located
close to the manufacturing unit If Maruti is a success story it is only because it indigenised 85 per cent of its
components within five years of going on-stream
Then theres the question of servicing the replacement market for spares Customers typically expect
components to be available locally and at competitive prices Imports cannot guarantee that but it is a
27
tremendous job to localize components at the right quality and price given the supplier problems in prevalent in
India
An Original Equipment Manufacturerrsquos competitive advantage lies in its marketing skills Having achieved price
and technology parity it can easily woo the consumer with attractive financing schemes and superior after-sales
service Nudged by the competition most auto players have a clutch of schemes to offer Daewoo Motors India
provides interestfree car finance Ford Motor and General Motors have slashed interest rates MULs joint
venture finance company Maruti Countrywide is offering loans at 1350 per cent when the prevailing lending
rate is 17 per cent and above
Chapter 44 The After Sales Service Scenario
After sales service for cars is as critical as showroom deals Maruti services its 2 million customers through an
army of 174 dealers spread across the country It will be impossible for a company to duplicate such
infrastructure particularly with investments in a metro-based showroom going up to Rs 4 crore Margins in
retailing are moving from actual sales to after sales service
The problem of price war is evident with Auto majors as much as with dealers In a bid to woo the customers
dealers particularly in non-prime locations are cutting their margins It will not be surprising if single-brand
dealers eventually turn into multi-brand sellers in future
Doing so will benefit all the three constituents in the marketing chain the OEM the dealer and the buyer The
carmaker can expand his reach without expensive investment the dealer can increase his revenue and the
customer gets a variety of models and brands under one roof in future
The local partner will be the loser in this fierce battle Without the means to make either matching equity or
technological investment the Indian collaborator will be driven off the road
28
It has already happened to the Rs 166-crore DCM which tied up with Daewoo Motors and can happen to both
the Rs 1258-crore Hindustan Motors (Partner General Motors) and the Rs 360657 crore Mahindra amp Mahindra
(Partner Ford Motor)
So they are reconciled to adopting a minority role or becoming auto component vendors This list includes
Siddharth Shrirams Rs 430-crore Siel (Partner Honda) the Kirloskars (Partner Toyota) and the Munjals of the
Rs 2000-crore Hero Group (Partner BMW) And the evidence is compelling eg Hindusthan Motors has a
passive role in its joint venture with General Motors although the Opel Astra is manufactured at HMs Halol plant
in Gujarat The same can be forecasted about Mahindra and Mahindrarsquos joint venture with Ford Motor What can
prolong the life of the joint venture is distribution muscle as it will take at least five years for a transnational auto
major to build a strong distribution channel in this country
By all accounts the auto industry is headed for a glut With an estimated demand for cars to touch 9 lakhs in
2001-2002 the installed capacity will rise to 16 lakhs So the current growth rate in Indian market is not
sustainable There will be at least two years of stagnant or declining demand before the resumption of the growth
trendThere is a projected demand of 1-lakh cars in the mid-segment alone by 2001-2002 And the car numbers
will add up to around 6 lakh a year That will engender a shakeout which is already afoot in the other Asian
markets For instance poor off -take and a consequent build-up of car inventories has led to a fierce price-war in
China
Chapter 45 Market Potential of Indian Automobile Segment
The demand for the small car will continue to drive growth for the next five years Of the total sales of Maruti in
2000-2001around 85 per cent were small cars The Esteems sales dropped in the same period where as the small
cars drove MULs sales So demand for small cars will leap only if certain conditions are fulfilled
29
Rise in the Income Levels In the US auto demand rises by 4 per cent for every 1 per cent increase in the real
Gross Domestic Product but this is irrelevant for India as only the top 150 per cent of the population
can afford a car The demand can shoot up if the income levels of the top 5 per cent continue to rise in future
Level Of Motorization It is stagnant at 170 cars per 1000 people for decades However in the post-liberalization
period the motorization level has leaped to 370 cars per 1000 Although it is still lower than the levels in the
developed markets motorization is bound to rise further in the coming years
Chapter 451 Vehicle Prices
Falling imports and excise duties coupled with competition will continue to boost demand and
the prices are likely to fall further at least in the short run
Chapter 452 Consumer Finance
Over 60 per cent of customers opt for consumer finance That figure could go up if interest
rates continue to fall
Chapter 453 Infrastructure
Traffic congestion and bad roads could deter potential buyers from going for small cars
particularly in small cities of India The future is not very heartening in this aspect
Chapter 454 Product Availability
As manufacturers shift their attention to the small car more and more people will be able to
afford it and demand will only rise in the future period of time
30
Chapter 46 The Future-Indian Automobile
There is a sharp contrast in the buying behavior of Indian Consumer compared to their western counter parts yet
there is no doubt that Indian car market is going to increasingly resemble the latter In the West the industry is
likely to be dominated by three or four major players With a likely demand of 11 lakh cars by 2006 there will be
a few niche players like BMW Mercedes-Benz and Audi with luxury cars to offer Unless car manufacturers
have a large range of vehicle to offer they will be unable to subsidize their costlier models
The market will consolidate to few segments The carmaker has to make diverse models based on diverse and
flexible platforms Products like the stripped-down economy car the sports utility vehicle or the van should be
built on the same platform For the price-sensitive customers there can be a no-frills version a loaded version for
the middle customer and luxury car manufacturers can target the high-end customers
The fortunes of the autoobile industry will continue to hinge on the large price sensitive customers who will
graduate to the higher end of the market over a period of time
Until then the small car will continue to drive demand and most of the car-manufacturers are
gearing up for this eventuality
31
Chapter 5 Company Profile
ldquoTata Motorsrdquo
32
CHAPTER 5 Company ProfileTata Motors
Tata Motors previously known as Tata Engineering and Locomotive Co Ltd (TELCO) is one of the largest
companies in the Tata Group and one of Indias largest business houses Tata Motors is Indias leading
commercial vehicle manufacturer and the third largest passenger car manufacturer The company is the sixth
largest truck manufacturer in the world Tata Motors recently received the Balanced Scorecard Collaborative Hall
of Fame Award for having achieved a significant turnaround of its overall performance A comprehensive quality
improvement and cost cutting initiative in September 2000 has played an important role in the companys
turnaround from a loss of Rs 500 crores in the year ended March 2001 to a profit of Rs 28 crores in the first
quarter of 2002-2003
Tata Engineering and Locomotive Company (TELCO)
Chapter 51 History amp Evolution
Tata Engineering and Locomotive Company Ltd popularly known as Telco was incorporated in 1945 to
manufacture steam locomotives In 1954 the company diversified into automobile manufacturing through a
collaboration with Daimler-Benz for the manufacture of commercial vehicles By the time the collaboration ended
in 1969 Telco had not only become an independent producer of medium commercial vehicles (MCVs) with
negligible import contentbut had developed the capability of designing and developing such vehicles The
Company progressively widened its product range to cover heavy commercial vehicles (HCVs) and light
commercial vehicles (LCVs) implementing one expansion program after another
To sustain the unrelenting pace of its growth Telco added machining press and assembly
33
capacities set up its own forge and foundries and virtually created the countryrsquos automobile ancillary industry
The Company even developed facilities for designing and manufacturing state-of-the-art machine tools material
handling equipment dies and fixtures To accommodate the Companyrsquos growing activity base a large modern
complex was set up at Pune in western India and a new plant became operational at Lucknow in the north of the
country
To provide a business focus for the Companyrsquos main activity areas Telco has created twobusiness unitsrsquo -
Automobiles and Construction Equipment ndash both of which have notched up record-breaking results
Telco today has a domestic market share of 68 in the MCVHCV segment 64 in the LCV segment and 32
in the multi-utility segment Apart from commercial vehicles which range from 1 ton to 35 tons GVW Telcorsquos
automobile products also include passenger vehicles and an extraordinarily popular multi-utility vehicle All these
products have been developed inhouse by the Companyrsquos own RampD Center This Center is equipped with the
latest computeraided design hardware and software enabling the company to respond quickly to changing
customer needs both in India and abroad
Telco has been exporting its products since 1969 and currently exports about a tenth of its
output Export markets include the Middle East Africa and Southeast Asia as well as
developed countries in Europe like France UK and Spain It is intended that exports should account for 20 of
the automobiles sold by the Company
Telcorsquos second line of business Construction Equipment has also grown rapidly and the
Company currently commands a 61 share in the excavator market and 90 in the crawler cranes market in
India The hydraulically operated construction equipment made by the company is in collaboration with Hitachi
34
Construction Machinery Limited of Japan There are ambitious plans for widening the range of excavators made
by the company and for adding new lines of construction equipment A recent addition to the excavator range is
Backhoe Loader
Telco is one of Indias largest private sector companies With a turnover of Rs 6637 billion it is the countrys
leading commercial vehicle manufacturer and the worldrsquos sixth largest automobile company
The widely successful Tata Indica which is Euro 1 and 2 compliant is the countryrsquos first
indigenously designed developed and manufactured passenger car The company also
makes several other passengers vehicles including the Safari the Sumo the Sierra the Tata Estate and the
Tatamobile pick-up
The companyrsquos products have received wide acceptance not only in India but also in markets in the Middle East
Asia Africa and Europe
Chapter 52 Areas of business
The company manufactures medium heavy and light commercial vehicles multi-utility
vehicles and passenger cars It also makes general and special purpose machines for
automotive applications at its machine tool division These include NCCNC horizontal and inline machining
centers flexible manufacturing systems CNC cylindrical grinding machines and robots for welding cutting
painting and other applications
In 1999 the companyrsquos revenues from its four manufacturing plants at three locations in India were Rs 6637
billion ($15735 million) In 1998 they were Rs 7026 billion ($1893 million) (The average exchange rate in
1999 was Rs 4218 to one US dollar)
35
In the year ended 31 March 2000 the companyrsquos total exports were worth about Rs 50553 crore against about
Rs 60078 crore in the previous year
Locations
The companyrsquos manufacturing plants in India are at Jamshedpur in Bihar Pimpri and
Chinchwad near Pune in Maharashtra and Lucknow in Uttar Pradesh A fifth manufacturing facility is being set
up at Dharwad in Karnataka
Collaborations
The Company has technical tie-ups with
bull The Institute of Development in Automotive Engineering SPA Italy for assistance in
small car body design and styling
bull Nachi Fujikoshi Corporation Japan for robots for welding painting and other
automotive applications
bull Le Moteur Moderne France for the development of diesel and petrol engines for
passenger cars and
bull Robert Bausch GmbH Germany for application work on the engine management
system for 4 PL petrol engines
36
Chapter 53 Tata Motors ndashSuccessful Car Indica
TELCO launched Indica when the TATA group was in red Telco chairman Ratan Tata said that the 1400 cc car
Indica would drive the company out of the red
Tata while talking to reporters at the IETF 99 in a videoconference from Mumbai said that the overwhelming
response of over 125 lakh initial bookings for the Indica had come as a surprise It seems we touched the
national chord somewhere as people responded to the fact that this is the first Indian car said Tata Indica is not
the end of the road for Telco when it comes to passenger cars It is just the beginning as there are more to come
said Tata adding that the company was working on another mid-size car after Indica
Telco had to produce 60000 cars a year to break-even The group created two
organizations within Telco one dealing with commercial vehicles and the other with passenger cars The
company under took a major restructuring exercise whereby the passenger car and commercial vehicles divisions
would function as two separate business units Telco had a strategy to go for exports after addressing the initial
requirements of the domestic market
Awards and Recognition
In May 2000 Tata Engineering and Locomotive Company Ltd (Telco) won a national award for successful
indigenous technology used in the Indica car project The award titled National award for successful
commercialization of indigenous technology by an industrial concern for indigenous development and
commercialization of Tata Indica car was presented by the minister for human resource development science and
technology and ocean development
Dr Murli Manohar Joshi
37
In November 1999 Telco was awarded the Department of scientific and industrial research
national award for indigenous design of the Tata Indica It was the first company in India to implement stringent
emission norms well ahead of the mandate dates
Promotions
The Indica advertising made interest for the car go into overdrive The campaign revolved around the premise that
the Indica would not just meet peoples expectations it would exceed them Every advertisement has a story to
tell
Pre launch Campaign
The Indica campaign began in the right earnest in December 1998 It was advertised as the launch of a car that
will spell doom for the small cars It was directly aimed at Maruti 800 The ad line used in the first campaign was
ldquoCar makers will suddenly remember all the thing they forgot to give yourdquo This hinted that Indica would have
more features than any of the existing small cars Indica used the catch lines like ldquo More car per Carrdquo ldquoMore
dreams per carrdquo to suggest that Indica will be bigger in size to the existing small cars yet be in the small car
category It competes with the mid size cars on size and give them a run for their money with its cheaper price
tag
At the launch of the car TELCO claimed that the people would never have to suffer from a small car again and
that the n end of the year (1998) would be the end of the small cars
Launch Campaign
The launch campaign of Indica focussed on the many advantages that it offered over other cars in the same
segment It promised the customers more than the current offerings Its first advertisement carried the following
catch line ldquo50cc moped 100cc bike 800cc car Time you asked for morerdquo
38
It then concentrated its efforts on criticizing the negative aspects of Maruti 800 and highlighted how Indica has
removed those very defects and presented a very sophisticated and modern car to the Indian customer It even
pointed out that the shape of Maruti was very unconventional and that people would prefer the shape of Indica to
Maruti 800 The advertisement read ldquo Box shaped bubble shaped wedge shaped But then Gentlemen prefer
curvesrdquo
The launch campaign also focussed on the roomy interiors of Indica a feature not offered by Maruti at that point
of time Also the expertise of TATA in diesel engines and fuel efficiency of these were the highlight of the launch
campaign of Tata Indica
Post Launch Campaigns
While the Launch campaign focussed on the features of Indica the post launch advertisements focussed on the
superior after sales service and longer warranty periods offered by Indica
Telco was the first company to offer an 18-month warranty period on engine parts The most famous line used
during this campaign was ldquoWe could go on and on about service or give you the one word summary TATArdquo
While their main adversary was the Maruti 800 Telco felt that it could also tap the mid size segment using the
selling point of space given by Indica They carried a campaign which said ldquoForget small cars we even make big
cars feel smallrdquo
It then went on to highlight the fact that Indica was Euro II compliant even before it was legally binding upon car
manufacturers to do so It also highlighted the concrete wall safety test that Indica withstands and tried to
showcase the car as a safe and strong car
39
Chapter 6 COST REDUCTION TECHNIQUES
IN TATA MOTORSrsquoS INDICA
40
Chapter 6 Tata Indica - The Making Of The Small Car
with objective of minimizing costs
The research provides an understanding of the issues concerning the supply chain management system at
Telco in regard to its small car Indica It outlines how Telco built the supply chain for the car by leveraging its
existing competencies and how it transformed itself from an integrated truck manufacturer to an automobile
integrator and from a product-centric company to competence- centric company The case discusses various
components of the supply chain and emphasises how Telco orchestrated them with the objective of minimizing
costs
ldquoTelcorsquos 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 comerdquo
- Business India March 22 1999
In the early 1990s Telcorsquos Chairman Ratan Tata (Tata) was flirting with the idea of developing a small
car By mid-1994 a rudimentary design was in place In 1995 Telco announced that it planned to build a car
which would be priced close to the Maruti 800 shaped like the Zen and spacious as an Ambassador
Producing the new small car ndash Indica ndash represented a different kind of challenge for Telco Should Tata succeed he
would change the face of Telco As a truck-maker Telco was so integrated that it even made it own castings and
forgings As an automaker it would have to focus on the value chain that stretched between raw materials and after-sales
41
service as well as assembling the parts into the complete automobile
For its new venture Telco outsourced 80 of the components (1200 of its 1500-plus parts) from 200-odd vendors To
develop the Indica Telco had to combine the learnings from its predecessors with its own unique supply chain
management strategies to ensure a sustainable low-cost platform
By learning to build and manage a supply chain it would set the ground for leveraging the capabilities of the
automotive component-manufacturers who already operated in its target markets In other words Telco planned
to use its skills as an integrator--bringing together products and services from both upstream and downstream
operations and packaging them for the customer under a brand name in its new venture
Globally a car could be built in 48 months with an investment of US $ 3 billion (Rs 1275 billion) Indica was
built in 31 months on a budget of Rs 17 billion This seemed to have been possible by focussing on the supply
chain
Chapter 61 THE OUTSOURCING STRATEGY
For Telco outsourcing seemed to be one of the most difficult aspects of producing the Indica Unlike global
automobile majors Ford Motors or General Motors which had a global vendor-base that could be replicated on
a smaller scale in India Telco had to create a vendor-base from scratch Moreover it did not have the expertise
either to design a car or to build an engine for it
Against this background Telco had to take its primary lsquomake-or-buyrsquo decisions for the key inputs-design
engine and transmission Telco decided to shop globally for the best deals and use its own expertise to make
42
whatever modifications were needed
(Refer Table I for the components outsourced by Telco)
TABLE I
OUTSOURCING THE COMPONENTS
Components Supplier
5 door hatchback IDEA Italy
Engine Institut Francais du Petrol
France
Assembly Line Nissanrsquos Plant Australia
Presses Mercedes Benz
Pistons and Piston rings India Pistons
Electrical components and fuel injection
systems Lucas-TVS
Steering systems Rane TRW Steering Systems
Clutch facings and rear (drum) brake linings Sundaram Brake Linings (SBL)
Seating Systems Tata-Johnson Controls
Radiators Tata-Toyo
Rear view mirrors Tata-Ficosa
Front and rear bumper dash-board inside
trims Tata-Auto Plastics
Air conditioning kits Subros Ltd
Wind screens and windows Asahi Glass
Fuel lines Imperial Auto
Differential assemblies Sona Steering
43
Sheet metal items JBM Tools
Source Business Today March 22 1999 and December 7 1999
Telco turned to the Italian company IDEA for the product-design It bought the engine from the Institut
Francais du Petrol of France and applied its engineering skills to adapt the engine requirements The transmission
was developed in-house at its Engineering Research Centre (ERC) at Pune Of the Rs 25 billion it spent on
designing the Indica the major share went in buying design tools and training its engineers in new skills Telcorsquos
engineers traveled regularly to the sites of its technology suppliers to receive training before the actual delivery
of the machines
Telco also outsourced its assembly line from Nissanrsquos plant in Australia for just Rs 900 million Telco
transplanted it at its factory at Chikli near Pune which was newly set up for Indica A new assembly line of the
same proportions would have cost at least Rs 4 billion Again of the 3 presses for the Indica only 1 was new
acquired for Rs 900 million while the other 2 were bought second-hand from Mercedes-Benz and modified to
suit the Indica
Telcorsquos engineers and the ERC did the application engineering programming installation and commissioning to
save around 45 of the technology costs The tooling for the car too was supplied internally by Telcorsquos machine
tool division To manage the supply chain better Telco kept the number of suppliers for Indica to just 200 as
compared to about 1000 for trucks Most of the parts were supplied by Telcorsquos traditional suppliersmdash TVS Rane
Group and Tata Auto Component Systems (Taco) who were single source suppliers Pressed parts assemblies
and drive shafts were sourced from single vendors
44
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
Instead they settled for the mid-size segment where both volumes and margins were expected to be high
However a shakeout in the Indian mid-size car segment the slowdown in international auto sales pushed
transnational auto majors into India which have now turned the tide against MULThe present generation small
cars launched recently are more contemporary in terms of both design and technology while Marutis small-car
technology is at least a decade old
Keeping the future growth potential of Indian market in mind the auto majors are prepared to bear losses for the
next 10 years This will help them to gain a good market share the long run and provide breathing space to
counter the strategic moves of the leader Hence the narrowing price differential between the old and the new
small cars is the first call of the auto majors against Maruti in Indian Market If Maruti has to try and match the
features of new generation small cars it would mean additional costs On the contrary if Maruti decides to
hold its price line and add new features it could translate into losses or at least low profits But MUL can still
bank on at least two Suzuki models the proposed 657-cc Cervo C and the current 996-cc Wagon R to battle its
rivals in the future
Chapter 43 The Advent of the Auto Majors
Besides bracing up for losses in the initial years auto majors like Hyundai and Daewoo are banking on exports
too At the moment export may look unattractive because of the South Asian meltdown but in the long run low
production costs and component-manufacturing skills will make India- made cars competitive at global market
place Hence they are looking India as a production base to cater to the growing Asian market by way of
outsourcing from Indian manufacturing base However many a hurdles they have to cross on the journey to
profitability
26
The investments necessary for a large plant are simply huge Daewoo has so far sunk Rs 2700 crore in a
120-lakh-unit-a-year plant Unlike China which has restricted the number of companies India has followed an
open door policy for car manufacturers which has resulted in emergence of fragmented markets with distributed
capacity
An Original Equipment Manufacturer (OEM) needs a minimum economic size of 150 lakh cars a year to attract
vendor interest Daewoo was able to slash the Cielos price as it is cheaper to import components because of the
devaluation of the South Asian currencies The auto majors are lobbying with the government to ease the strict
indigenisation norms in the new automobile policy so that they can import the components from other countries
This will help them to cut the prices and to go head on the market leader particularly in a price responsive market
like that of small car segment
The other argument is that with the given import duty of 103 per cent on Completely Knocked-Down Kits
(CKDs) which is the same as that on Completely Built-up Units (CBUs) and 68 per cent on components the
imports will become costlier and compel companies to localize their manufacture The exposure to currency
fluctuations which crippled the four Japanese light commercial vehicle projects in the late 1980s is also minimal
when a company localizes component manufacture
Besides lean manufacturing techniques like Just-In-Time (JIT) are possible only when the supplier is located
close to the manufacturing unit If Maruti is a success story it is only because it indigenised 85 per cent of its
components within five years of going on-stream
Then theres the question of servicing the replacement market for spares Customers typically expect
components to be available locally and at competitive prices Imports cannot guarantee that but it is a
27
tremendous job to localize components at the right quality and price given the supplier problems in prevalent in
India
An Original Equipment Manufacturerrsquos competitive advantage lies in its marketing skills Having achieved price
and technology parity it can easily woo the consumer with attractive financing schemes and superior after-sales
service Nudged by the competition most auto players have a clutch of schemes to offer Daewoo Motors India
provides interestfree car finance Ford Motor and General Motors have slashed interest rates MULs joint
venture finance company Maruti Countrywide is offering loans at 1350 per cent when the prevailing lending
rate is 17 per cent and above
Chapter 44 The After Sales Service Scenario
After sales service for cars is as critical as showroom deals Maruti services its 2 million customers through an
army of 174 dealers spread across the country It will be impossible for a company to duplicate such
infrastructure particularly with investments in a metro-based showroom going up to Rs 4 crore Margins in
retailing are moving from actual sales to after sales service
The problem of price war is evident with Auto majors as much as with dealers In a bid to woo the customers
dealers particularly in non-prime locations are cutting their margins It will not be surprising if single-brand
dealers eventually turn into multi-brand sellers in future
Doing so will benefit all the three constituents in the marketing chain the OEM the dealer and the buyer The
carmaker can expand his reach without expensive investment the dealer can increase his revenue and the
customer gets a variety of models and brands under one roof in future
The local partner will be the loser in this fierce battle Without the means to make either matching equity or
technological investment the Indian collaborator will be driven off the road
28
It has already happened to the Rs 166-crore DCM which tied up with Daewoo Motors and can happen to both
the Rs 1258-crore Hindustan Motors (Partner General Motors) and the Rs 360657 crore Mahindra amp Mahindra
(Partner Ford Motor)
So they are reconciled to adopting a minority role or becoming auto component vendors This list includes
Siddharth Shrirams Rs 430-crore Siel (Partner Honda) the Kirloskars (Partner Toyota) and the Munjals of the
Rs 2000-crore Hero Group (Partner BMW) And the evidence is compelling eg Hindusthan Motors has a
passive role in its joint venture with General Motors although the Opel Astra is manufactured at HMs Halol plant
in Gujarat The same can be forecasted about Mahindra and Mahindrarsquos joint venture with Ford Motor What can
prolong the life of the joint venture is distribution muscle as it will take at least five years for a transnational auto
major to build a strong distribution channel in this country
By all accounts the auto industry is headed for a glut With an estimated demand for cars to touch 9 lakhs in
2001-2002 the installed capacity will rise to 16 lakhs So the current growth rate in Indian market is not
sustainable There will be at least two years of stagnant or declining demand before the resumption of the growth
trendThere is a projected demand of 1-lakh cars in the mid-segment alone by 2001-2002 And the car numbers
will add up to around 6 lakh a year That will engender a shakeout which is already afoot in the other Asian
markets For instance poor off -take and a consequent build-up of car inventories has led to a fierce price-war in
China
Chapter 45 Market Potential of Indian Automobile Segment
The demand for the small car will continue to drive growth for the next five years Of the total sales of Maruti in
2000-2001around 85 per cent were small cars The Esteems sales dropped in the same period where as the small
cars drove MULs sales So demand for small cars will leap only if certain conditions are fulfilled
29
Rise in the Income Levels In the US auto demand rises by 4 per cent for every 1 per cent increase in the real
Gross Domestic Product but this is irrelevant for India as only the top 150 per cent of the population
can afford a car The demand can shoot up if the income levels of the top 5 per cent continue to rise in future
Level Of Motorization It is stagnant at 170 cars per 1000 people for decades However in the post-liberalization
period the motorization level has leaped to 370 cars per 1000 Although it is still lower than the levels in the
developed markets motorization is bound to rise further in the coming years
Chapter 451 Vehicle Prices
Falling imports and excise duties coupled with competition will continue to boost demand and
the prices are likely to fall further at least in the short run
Chapter 452 Consumer Finance
Over 60 per cent of customers opt for consumer finance That figure could go up if interest
rates continue to fall
Chapter 453 Infrastructure
Traffic congestion and bad roads could deter potential buyers from going for small cars
particularly in small cities of India The future is not very heartening in this aspect
Chapter 454 Product Availability
As manufacturers shift their attention to the small car more and more people will be able to
afford it and demand will only rise in the future period of time
30
Chapter 46 The Future-Indian Automobile
There is a sharp contrast in the buying behavior of Indian Consumer compared to their western counter parts yet
there is no doubt that Indian car market is going to increasingly resemble the latter In the West the industry is
likely to be dominated by three or four major players With a likely demand of 11 lakh cars by 2006 there will be
a few niche players like BMW Mercedes-Benz and Audi with luxury cars to offer Unless car manufacturers
have a large range of vehicle to offer they will be unable to subsidize their costlier models
The market will consolidate to few segments The carmaker has to make diverse models based on diverse and
flexible platforms Products like the stripped-down economy car the sports utility vehicle or the van should be
built on the same platform For the price-sensitive customers there can be a no-frills version a loaded version for
the middle customer and luxury car manufacturers can target the high-end customers
The fortunes of the autoobile industry will continue to hinge on the large price sensitive customers who will
graduate to the higher end of the market over a period of time
Until then the small car will continue to drive demand and most of the car-manufacturers are
gearing up for this eventuality
31
Chapter 5 Company Profile
ldquoTata Motorsrdquo
32
CHAPTER 5 Company ProfileTata Motors
Tata Motors previously known as Tata Engineering and Locomotive Co Ltd (TELCO) is one of the largest
companies in the Tata Group and one of Indias largest business houses Tata Motors is Indias leading
commercial vehicle manufacturer and the third largest passenger car manufacturer The company is the sixth
largest truck manufacturer in the world Tata Motors recently received the Balanced Scorecard Collaborative Hall
of Fame Award for having achieved a significant turnaround of its overall performance A comprehensive quality
improvement and cost cutting initiative in September 2000 has played an important role in the companys
turnaround from a loss of Rs 500 crores in the year ended March 2001 to a profit of Rs 28 crores in the first
quarter of 2002-2003
Tata Engineering and Locomotive Company (TELCO)
Chapter 51 History amp Evolution
Tata Engineering and Locomotive Company Ltd popularly known as Telco was incorporated in 1945 to
manufacture steam locomotives In 1954 the company diversified into automobile manufacturing through a
collaboration with Daimler-Benz for the manufacture of commercial vehicles By the time the collaboration ended
in 1969 Telco had not only become an independent producer of medium commercial vehicles (MCVs) with
negligible import contentbut had developed the capability of designing and developing such vehicles The
Company progressively widened its product range to cover heavy commercial vehicles (HCVs) and light
commercial vehicles (LCVs) implementing one expansion program after another
To sustain the unrelenting pace of its growth Telco added machining press and assembly
33
capacities set up its own forge and foundries and virtually created the countryrsquos automobile ancillary industry
The Company even developed facilities for designing and manufacturing state-of-the-art machine tools material
handling equipment dies and fixtures To accommodate the Companyrsquos growing activity base a large modern
complex was set up at Pune in western India and a new plant became operational at Lucknow in the north of the
country
To provide a business focus for the Companyrsquos main activity areas Telco has created twobusiness unitsrsquo -
Automobiles and Construction Equipment ndash both of which have notched up record-breaking results
Telco today has a domestic market share of 68 in the MCVHCV segment 64 in the LCV segment and 32
in the multi-utility segment Apart from commercial vehicles which range from 1 ton to 35 tons GVW Telcorsquos
automobile products also include passenger vehicles and an extraordinarily popular multi-utility vehicle All these
products have been developed inhouse by the Companyrsquos own RampD Center This Center is equipped with the
latest computeraided design hardware and software enabling the company to respond quickly to changing
customer needs both in India and abroad
Telco has been exporting its products since 1969 and currently exports about a tenth of its
output Export markets include the Middle East Africa and Southeast Asia as well as
developed countries in Europe like France UK and Spain It is intended that exports should account for 20 of
the automobiles sold by the Company
Telcorsquos second line of business Construction Equipment has also grown rapidly and the
Company currently commands a 61 share in the excavator market and 90 in the crawler cranes market in
India The hydraulically operated construction equipment made by the company is in collaboration with Hitachi
34
Construction Machinery Limited of Japan There are ambitious plans for widening the range of excavators made
by the company and for adding new lines of construction equipment A recent addition to the excavator range is
Backhoe Loader
Telco is one of Indias largest private sector companies With a turnover of Rs 6637 billion it is the countrys
leading commercial vehicle manufacturer and the worldrsquos sixth largest automobile company
The widely successful Tata Indica which is Euro 1 and 2 compliant is the countryrsquos first
indigenously designed developed and manufactured passenger car The company also
makes several other passengers vehicles including the Safari the Sumo the Sierra the Tata Estate and the
Tatamobile pick-up
The companyrsquos products have received wide acceptance not only in India but also in markets in the Middle East
Asia Africa and Europe
Chapter 52 Areas of business
The company manufactures medium heavy and light commercial vehicles multi-utility
vehicles and passenger cars It also makes general and special purpose machines for
automotive applications at its machine tool division These include NCCNC horizontal and inline machining
centers flexible manufacturing systems CNC cylindrical grinding machines and robots for welding cutting
painting and other applications
In 1999 the companyrsquos revenues from its four manufacturing plants at three locations in India were Rs 6637
billion ($15735 million) In 1998 they were Rs 7026 billion ($1893 million) (The average exchange rate in
1999 was Rs 4218 to one US dollar)
35
In the year ended 31 March 2000 the companyrsquos total exports were worth about Rs 50553 crore against about
Rs 60078 crore in the previous year
Locations
The companyrsquos manufacturing plants in India are at Jamshedpur in Bihar Pimpri and
Chinchwad near Pune in Maharashtra and Lucknow in Uttar Pradesh A fifth manufacturing facility is being set
up at Dharwad in Karnataka
Collaborations
The Company has technical tie-ups with
bull The Institute of Development in Automotive Engineering SPA Italy for assistance in
small car body design and styling
bull Nachi Fujikoshi Corporation Japan for robots for welding painting and other
automotive applications
bull Le Moteur Moderne France for the development of diesel and petrol engines for
passenger cars and
bull Robert Bausch GmbH Germany for application work on the engine management
system for 4 PL petrol engines
36
Chapter 53 Tata Motors ndashSuccessful Car Indica
TELCO launched Indica when the TATA group was in red Telco chairman Ratan Tata said that the 1400 cc car
Indica would drive the company out of the red
Tata while talking to reporters at the IETF 99 in a videoconference from Mumbai said that the overwhelming
response of over 125 lakh initial bookings for the Indica had come as a surprise It seems we touched the
national chord somewhere as people responded to the fact that this is the first Indian car said Tata Indica is not
the end of the road for Telco when it comes to passenger cars It is just the beginning as there are more to come
said Tata adding that the company was working on another mid-size car after Indica
Telco had to produce 60000 cars a year to break-even The group created two
organizations within Telco one dealing with commercial vehicles and the other with passenger cars The
company under took a major restructuring exercise whereby the passenger car and commercial vehicles divisions
would function as two separate business units Telco had a strategy to go for exports after addressing the initial
requirements of the domestic market
Awards and Recognition
In May 2000 Tata Engineering and Locomotive Company Ltd (Telco) won a national award for successful
indigenous technology used in the Indica car project The award titled National award for successful
commercialization of indigenous technology by an industrial concern for indigenous development and
commercialization of Tata Indica car was presented by the minister for human resource development science and
technology and ocean development
Dr Murli Manohar Joshi
37
In November 1999 Telco was awarded the Department of scientific and industrial research
national award for indigenous design of the Tata Indica It was the first company in India to implement stringent
emission norms well ahead of the mandate dates
Promotions
The Indica advertising made interest for the car go into overdrive The campaign revolved around the premise that
the Indica would not just meet peoples expectations it would exceed them Every advertisement has a story to
tell
Pre launch Campaign
The Indica campaign began in the right earnest in December 1998 It was advertised as the launch of a car that
will spell doom for the small cars It was directly aimed at Maruti 800 The ad line used in the first campaign was
ldquoCar makers will suddenly remember all the thing they forgot to give yourdquo This hinted that Indica would have
more features than any of the existing small cars Indica used the catch lines like ldquo More car per Carrdquo ldquoMore
dreams per carrdquo to suggest that Indica will be bigger in size to the existing small cars yet be in the small car
category It competes with the mid size cars on size and give them a run for their money with its cheaper price
tag
At the launch of the car TELCO claimed that the people would never have to suffer from a small car again and
that the n end of the year (1998) would be the end of the small cars
Launch Campaign
The launch campaign of Indica focussed on the many advantages that it offered over other cars in the same
segment It promised the customers more than the current offerings Its first advertisement carried the following
catch line ldquo50cc moped 100cc bike 800cc car Time you asked for morerdquo
38
It then concentrated its efforts on criticizing the negative aspects of Maruti 800 and highlighted how Indica has
removed those very defects and presented a very sophisticated and modern car to the Indian customer It even
pointed out that the shape of Maruti was very unconventional and that people would prefer the shape of Indica to
Maruti 800 The advertisement read ldquo Box shaped bubble shaped wedge shaped But then Gentlemen prefer
curvesrdquo
The launch campaign also focussed on the roomy interiors of Indica a feature not offered by Maruti at that point
of time Also the expertise of TATA in diesel engines and fuel efficiency of these were the highlight of the launch
campaign of Tata Indica
Post Launch Campaigns
While the Launch campaign focussed on the features of Indica the post launch advertisements focussed on the
superior after sales service and longer warranty periods offered by Indica
Telco was the first company to offer an 18-month warranty period on engine parts The most famous line used
during this campaign was ldquoWe could go on and on about service or give you the one word summary TATArdquo
While their main adversary was the Maruti 800 Telco felt that it could also tap the mid size segment using the
selling point of space given by Indica They carried a campaign which said ldquoForget small cars we even make big
cars feel smallrdquo
It then went on to highlight the fact that Indica was Euro II compliant even before it was legally binding upon car
manufacturers to do so It also highlighted the concrete wall safety test that Indica withstands and tried to
showcase the car as a safe and strong car
39
Chapter 6 COST REDUCTION TECHNIQUES
IN TATA MOTORSrsquoS INDICA
40
Chapter 6 Tata Indica - The Making Of The Small Car
with objective of minimizing costs
The research provides an understanding of the issues concerning the supply chain management system at
Telco in regard to its small car Indica It outlines how Telco built the supply chain for the car by leveraging its
existing competencies and how it transformed itself from an integrated truck manufacturer to an automobile
integrator and from a product-centric company to competence- centric company The case discusses various
components of the supply chain and emphasises how Telco orchestrated them with the objective of minimizing
costs
ldquoTelcorsquos 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 comerdquo
- Business India March 22 1999
In the early 1990s Telcorsquos Chairman Ratan Tata (Tata) was flirting with the idea of developing a small
car By mid-1994 a rudimentary design was in place In 1995 Telco announced that it planned to build a car
which would be priced close to the Maruti 800 shaped like the Zen and spacious as an Ambassador
Producing the new small car ndash Indica ndash represented a different kind of challenge for Telco Should Tata succeed he
would change the face of Telco As a truck-maker Telco was so integrated that it even made it own castings and
forgings As an automaker it would have to focus on the value chain that stretched between raw materials and after-sales
41
service as well as assembling the parts into the complete automobile
For its new venture Telco outsourced 80 of the components (1200 of its 1500-plus parts) from 200-odd vendors To
develop the Indica Telco had to combine the learnings from its predecessors with its own unique supply chain
management strategies to ensure a sustainable low-cost platform
By learning to build and manage a supply chain it would set the ground for leveraging the capabilities of the
automotive component-manufacturers who already operated in its target markets In other words Telco planned
to use its skills as an integrator--bringing together products and services from both upstream and downstream
operations and packaging them for the customer under a brand name in its new venture
Globally a car could be built in 48 months with an investment of US $ 3 billion (Rs 1275 billion) Indica was
built in 31 months on a budget of Rs 17 billion This seemed to have been possible by focussing on the supply
chain
Chapter 61 THE OUTSOURCING STRATEGY
For Telco outsourcing seemed to be one of the most difficult aspects of producing the Indica Unlike global
automobile majors Ford Motors or General Motors which had a global vendor-base that could be replicated on
a smaller scale in India Telco had to create a vendor-base from scratch Moreover it did not have the expertise
either to design a car or to build an engine for it
Against this background Telco had to take its primary lsquomake-or-buyrsquo decisions for the key inputs-design
engine and transmission Telco decided to shop globally for the best deals and use its own expertise to make
42
whatever modifications were needed
(Refer Table I for the components outsourced by Telco)
TABLE I
OUTSOURCING THE COMPONENTS
Components Supplier
5 door hatchback IDEA Italy
Engine Institut Francais du Petrol
France
Assembly Line Nissanrsquos Plant Australia
Presses Mercedes Benz
Pistons and Piston rings India Pistons
Electrical components and fuel injection
systems Lucas-TVS
Steering systems Rane TRW Steering Systems
Clutch facings and rear (drum) brake linings Sundaram Brake Linings (SBL)
Seating Systems Tata-Johnson Controls
Radiators Tata-Toyo
Rear view mirrors Tata-Ficosa
Front and rear bumper dash-board inside
trims Tata-Auto Plastics
Air conditioning kits Subros Ltd
Wind screens and windows Asahi Glass
Fuel lines Imperial Auto
Differential assemblies Sona Steering
43
Sheet metal items JBM Tools
Source Business Today March 22 1999 and December 7 1999
Telco turned to the Italian company IDEA for the product-design It bought the engine from the Institut
Francais du Petrol of France and applied its engineering skills to adapt the engine requirements The transmission
was developed in-house at its Engineering Research Centre (ERC) at Pune Of the Rs 25 billion it spent on
designing the Indica the major share went in buying design tools and training its engineers in new skills Telcorsquos
engineers traveled regularly to the sites of its technology suppliers to receive training before the actual delivery
of the machines
Telco also outsourced its assembly line from Nissanrsquos plant in Australia for just Rs 900 million Telco
transplanted it at its factory at Chikli near Pune which was newly set up for Indica A new assembly line of the
same proportions would have cost at least Rs 4 billion Again of the 3 presses for the Indica only 1 was new
acquired for Rs 900 million while the other 2 were bought second-hand from Mercedes-Benz and modified to
suit the Indica
Telcorsquos engineers and the ERC did the application engineering programming installation and commissioning to
save around 45 of the technology costs The tooling for the car too was supplied internally by Telcorsquos machine
tool division To manage the supply chain better Telco kept the number of suppliers for Indica to just 200 as
compared to about 1000 for trucks Most of the parts were supplied by Telcorsquos traditional suppliersmdash TVS Rane
Group and Tata Auto Component Systems (Taco) who were single source suppliers Pressed parts assemblies
and drive shafts were sourced from single vendors
44
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
The investments necessary for a large plant are simply huge Daewoo has so far sunk Rs 2700 crore in a
120-lakh-unit-a-year plant Unlike China which has restricted the number of companies India has followed an
open door policy for car manufacturers which has resulted in emergence of fragmented markets with distributed
capacity
An Original Equipment Manufacturer (OEM) needs a minimum economic size of 150 lakh cars a year to attract
vendor interest Daewoo was able to slash the Cielos price as it is cheaper to import components because of the
devaluation of the South Asian currencies The auto majors are lobbying with the government to ease the strict
indigenisation norms in the new automobile policy so that they can import the components from other countries
This will help them to cut the prices and to go head on the market leader particularly in a price responsive market
like that of small car segment
The other argument is that with the given import duty of 103 per cent on Completely Knocked-Down Kits
(CKDs) which is the same as that on Completely Built-up Units (CBUs) and 68 per cent on components the
imports will become costlier and compel companies to localize their manufacture The exposure to currency
fluctuations which crippled the four Japanese light commercial vehicle projects in the late 1980s is also minimal
when a company localizes component manufacture
Besides lean manufacturing techniques like Just-In-Time (JIT) are possible only when the supplier is located
close to the manufacturing unit If Maruti is a success story it is only because it indigenised 85 per cent of its
components within five years of going on-stream
Then theres the question of servicing the replacement market for spares Customers typically expect
components to be available locally and at competitive prices Imports cannot guarantee that but it is a
27
tremendous job to localize components at the right quality and price given the supplier problems in prevalent in
India
An Original Equipment Manufacturerrsquos competitive advantage lies in its marketing skills Having achieved price
and technology parity it can easily woo the consumer with attractive financing schemes and superior after-sales
service Nudged by the competition most auto players have a clutch of schemes to offer Daewoo Motors India
provides interestfree car finance Ford Motor and General Motors have slashed interest rates MULs joint
venture finance company Maruti Countrywide is offering loans at 1350 per cent when the prevailing lending
rate is 17 per cent and above
Chapter 44 The After Sales Service Scenario
After sales service for cars is as critical as showroom deals Maruti services its 2 million customers through an
army of 174 dealers spread across the country It will be impossible for a company to duplicate such
infrastructure particularly with investments in a metro-based showroom going up to Rs 4 crore Margins in
retailing are moving from actual sales to after sales service
The problem of price war is evident with Auto majors as much as with dealers In a bid to woo the customers
dealers particularly in non-prime locations are cutting their margins It will not be surprising if single-brand
dealers eventually turn into multi-brand sellers in future
Doing so will benefit all the three constituents in the marketing chain the OEM the dealer and the buyer The
carmaker can expand his reach without expensive investment the dealer can increase his revenue and the
customer gets a variety of models and brands under one roof in future
The local partner will be the loser in this fierce battle Without the means to make either matching equity or
technological investment the Indian collaborator will be driven off the road
28
It has already happened to the Rs 166-crore DCM which tied up with Daewoo Motors and can happen to both
the Rs 1258-crore Hindustan Motors (Partner General Motors) and the Rs 360657 crore Mahindra amp Mahindra
(Partner Ford Motor)
So they are reconciled to adopting a minority role or becoming auto component vendors This list includes
Siddharth Shrirams Rs 430-crore Siel (Partner Honda) the Kirloskars (Partner Toyota) and the Munjals of the
Rs 2000-crore Hero Group (Partner BMW) And the evidence is compelling eg Hindusthan Motors has a
passive role in its joint venture with General Motors although the Opel Astra is manufactured at HMs Halol plant
in Gujarat The same can be forecasted about Mahindra and Mahindrarsquos joint venture with Ford Motor What can
prolong the life of the joint venture is distribution muscle as it will take at least five years for a transnational auto
major to build a strong distribution channel in this country
By all accounts the auto industry is headed for a glut With an estimated demand for cars to touch 9 lakhs in
2001-2002 the installed capacity will rise to 16 lakhs So the current growth rate in Indian market is not
sustainable There will be at least two years of stagnant or declining demand before the resumption of the growth
trendThere is a projected demand of 1-lakh cars in the mid-segment alone by 2001-2002 And the car numbers
will add up to around 6 lakh a year That will engender a shakeout which is already afoot in the other Asian
markets For instance poor off -take and a consequent build-up of car inventories has led to a fierce price-war in
China
Chapter 45 Market Potential of Indian Automobile Segment
The demand for the small car will continue to drive growth for the next five years Of the total sales of Maruti in
2000-2001around 85 per cent were small cars The Esteems sales dropped in the same period where as the small
cars drove MULs sales So demand for small cars will leap only if certain conditions are fulfilled
29
Rise in the Income Levels In the US auto demand rises by 4 per cent for every 1 per cent increase in the real
Gross Domestic Product but this is irrelevant for India as only the top 150 per cent of the population
can afford a car The demand can shoot up if the income levels of the top 5 per cent continue to rise in future
Level Of Motorization It is stagnant at 170 cars per 1000 people for decades However in the post-liberalization
period the motorization level has leaped to 370 cars per 1000 Although it is still lower than the levels in the
developed markets motorization is bound to rise further in the coming years
Chapter 451 Vehicle Prices
Falling imports and excise duties coupled with competition will continue to boost demand and
the prices are likely to fall further at least in the short run
Chapter 452 Consumer Finance
Over 60 per cent of customers opt for consumer finance That figure could go up if interest
rates continue to fall
Chapter 453 Infrastructure
Traffic congestion and bad roads could deter potential buyers from going for small cars
particularly in small cities of India The future is not very heartening in this aspect
Chapter 454 Product Availability
As manufacturers shift their attention to the small car more and more people will be able to
afford it and demand will only rise in the future period of time
30
Chapter 46 The Future-Indian Automobile
There is a sharp contrast in the buying behavior of Indian Consumer compared to their western counter parts yet
there is no doubt that Indian car market is going to increasingly resemble the latter In the West the industry is
likely to be dominated by three or four major players With a likely demand of 11 lakh cars by 2006 there will be
a few niche players like BMW Mercedes-Benz and Audi with luxury cars to offer Unless car manufacturers
have a large range of vehicle to offer they will be unable to subsidize their costlier models
The market will consolidate to few segments The carmaker has to make diverse models based on diverse and
flexible platforms Products like the stripped-down economy car the sports utility vehicle or the van should be
built on the same platform For the price-sensitive customers there can be a no-frills version a loaded version for
the middle customer and luxury car manufacturers can target the high-end customers
The fortunes of the autoobile industry will continue to hinge on the large price sensitive customers who will
graduate to the higher end of the market over a period of time
Until then the small car will continue to drive demand and most of the car-manufacturers are
gearing up for this eventuality
31
Chapter 5 Company Profile
ldquoTata Motorsrdquo
32
CHAPTER 5 Company ProfileTata Motors
Tata Motors previously known as Tata Engineering and Locomotive Co Ltd (TELCO) is one of the largest
companies in the Tata Group and one of Indias largest business houses Tata Motors is Indias leading
commercial vehicle manufacturer and the third largest passenger car manufacturer The company is the sixth
largest truck manufacturer in the world Tata Motors recently received the Balanced Scorecard Collaborative Hall
of Fame Award for having achieved a significant turnaround of its overall performance A comprehensive quality
improvement and cost cutting initiative in September 2000 has played an important role in the companys
turnaround from a loss of Rs 500 crores in the year ended March 2001 to a profit of Rs 28 crores in the first
quarter of 2002-2003
Tata Engineering and Locomotive Company (TELCO)
Chapter 51 History amp Evolution
Tata Engineering and Locomotive Company Ltd popularly known as Telco was incorporated in 1945 to
manufacture steam locomotives In 1954 the company diversified into automobile manufacturing through a
collaboration with Daimler-Benz for the manufacture of commercial vehicles By the time the collaboration ended
in 1969 Telco had not only become an independent producer of medium commercial vehicles (MCVs) with
negligible import contentbut had developed the capability of designing and developing such vehicles The
Company progressively widened its product range to cover heavy commercial vehicles (HCVs) and light
commercial vehicles (LCVs) implementing one expansion program after another
To sustain the unrelenting pace of its growth Telco added machining press and assembly
33
capacities set up its own forge and foundries and virtually created the countryrsquos automobile ancillary industry
The Company even developed facilities for designing and manufacturing state-of-the-art machine tools material
handling equipment dies and fixtures To accommodate the Companyrsquos growing activity base a large modern
complex was set up at Pune in western India and a new plant became operational at Lucknow in the north of the
country
To provide a business focus for the Companyrsquos main activity areas Telco has created twobusiness unitsrsquo -
Automobiles and Construction Equipment ndash both of which have notched up record-breaking results
Telco today has a domestic market share of 68 in the MCVHCV segment 64 in the LCV segment and 32
in the multi-utility segment Apart from commercial vehicles which range from 1 ton to 35 tons GVW Telcorsquos
automobile products also include passenger vehicles and an extraordinarily popular multi-utility vehicle All these
products have been developed inhouse by the Companyrsquos own RampD Center This Center is equipped with the
latest computeraided design hardware and software enabling the company to respond quickly to changing
customer needs both in India and abroad
Telco has been exporting its products since 1969 and currently exports about a tenth of its
output Export markets include the Middle East Africa and Southeast Asia as well as
developed countries in Europe like France UK and Spain It is intended that exports should account for 20 of
the automobiles sold by the Company
Telcorsquos second line of business Construction Equipment has also grown rapidly and the
Company currently commands a 61 share in the excavator market and 90 in the crawler cranes market in
India The hydraulically operated construction equipment made by the company is in collaboration with Hitachi
34
Construction Machinery Limited of Japan There are ambitious plans for widening the range of excavators made
by the company and for adding new lines of construction equipment A recent addition to the excavator range is
Backhoe Loader
Telco is one of Indias largest private sector companies With a turnover of Rs 6637 billion it is the countrys
leading commercial vehicle manufacturer and the worldrsquos sixth largest automobile company
The widely successful Tata Indica which is Euro 1 and 2 compliant is the countryrsquos first
indigenously designed developed and manufactured passenger car The company also
makes several other passengers vehicles including the Safari the Sumo the Sierra the Tata Estate and the
Tatamobile pick-up
The companyrsquos products have received wide acceptance not only in India but also in markets in the Middle East
Asia Africa and Europe
Chapter 52 Areas of business
The company manufactures medium heavy and light commercial vehicles multi-utility
vehicles and passenger cars It also makes general and special purpose machines for
automotive applications at its machine tool division These include NCCNC horizontal and inline machining
centers flexible manufacturing systems CNC cylindrical grinding machines and robots for welding cutting
painting and other applications
In 1999 the companyrsquos revenues from its four manufacturing plants at three locations in India were Rs 6637
billion ($15735 million) In 1998 they were Rs 7026 billion ($1893 million) (The average exchange rate in
1999 was Rs 4218 to one US dollar)
35
In the year ended 31 March 2000 the companyrsquos total exports were worth about Rs 50553 crore against about
Rs 60078 crore in the previous year
Locations
The companyrsquos manufacturing plants in India are at Jamshedpur in Bihar Pimpri and
Chinchwad near Pune in Maharashtra and Lucknow in Uttar Pradesh A fifth manufacturing facility is being set
up at Dharwad in Karnataka
Collaborations
The Company has technical tie-ups with
bull The Institute of Development in Automotive Engineering SPA Italy for assistance in
small car body design and styling
bull Nachi Fujikoshi Corporation Japan for robots for welding painting and other
automotive applications
bull Le Moteur Moderne France for the development of diesel and petrol engines for
passenger cars and
bull Robert Bausch GmbH Germany for application work on the engine management
system for 4 PL petrol engines
36
Chapter 53 Tata Motors ndashSuccessful Car Indica
TELCO launched Indica when the TATA group was in red Telco chairman Ratan Tata said that the 1400 cc car
Indica would drive the company out of the red
Tata while talking to reporters at the IETF 99 in a videoconference from Mumbai said that the overwhelming
response of over 125 lakh initial bookings for the Indica had come as a surprise It seems we touched the
national chord somewhere as people responded to the fact that this is the first Indian car said Tata Indica is not
the end of the road for Telco when it comes to passenger cars It is just the beginning as there are more to come
said Tata adding that the company was working on another mid-size car after Indica
Telco had to produce 60000 cars a year to break-even The group created two
organizations within Telco one dealing with commercial vehicles and the other with passenger cars The
company under took a major restructuring exercise whereby the passenger car and commercial vehicles divisions
would function as two separate business units Telco had a strategy to go for exports after addressing the initial
requirements of the domestic market
Awards and Recognition
In May 2000 Tata Engineering and Locomotive Company Ltd (Telco) won a national award for successful
indigenous technology used in the Indica car project The award titled National award for successful
commercialization of indigenous technology by an industrial concern for indigenous development and
commercialization of Tata Indica car was presented by the minister for human resource development science and
technology and ocean development
Dr Murli Manohar Joshi
37
In November 1999 Telco was awarded the Department of scientific and industrial research
national award for indigenous design of the Tata Indica It was the first company in India to implement stringent
emission norms well ahead of the mandate dates
Promotions
The Indica advertising made interest for the car go into overdrive The campaign revolved around the premise that
the Indica would not just meet peoples expectations it would exceed them Every advertisement has a story to
tell
Pre launch Campaign
The Indica campaign began in the right earnest in December 1998 It was advertised as the launch of a car that
will spell doom for the small cars It was directly aimed at Maruti 800 The ad line used in the first campaign was
ldquoCar makers will suddenly remember all the thing they forgot to give yourdquo This hinted that Indica would have
more features than any of the existing small cars Indica used the catch lines like ldquo More car per Carrdquo ldquoMore
dreams per carrdquo to suggest that Indica will be bigger in size to the existing small cars yet be in the small car
category It competes with the mid size cars on size and give them a run for their money with its cheaper price
tag
At the launch of the car TELCO claimed that the people would never have to suffer from a small car again and
that the n end of the year (1998) would be the end of the small cars
Launch Campaign
The launch campaign of Indica focussed on the many advantages that it offered over other cars in the same
segment It promised the customers more than the current offerings Its first advertisement carried the following
catch line ldquo50cc moped 100cc bike 800cc car Time you asked for morerdquo
38
It then concentrated its efforts on criticizing the negative aspects of Maruti 800 and highlighted how Indica has
removed those very defects and presented a very sophisticated and modern car to the Indian customer It even
pointed out that the shape of Maruti was very unconventional and that people would prefer the shape of Indica to
Maruti 800 The advertisement read ldquo Box shaped bubble shaped wedge shaped But then Gentlemen prefer
curvesrdquo
The launch campaign also focussed on the roomy interiors of Indica a feature not offered by Maruti at that point
of time Also the expertise of TATA in diesel engines and fuel efficiency of these were the highlight of the launch
campaign of Tata Indica
Post Launch Campaigns
While the Launch campaign focussed on the features of Indica the post launch advertisements focussed on the
superior after sales service and longer warranty periods offered by Indica
Telco was the first company to offer an 18-month warranty period on engine parts The most famous line used
during this campaign was ldquoWe could go on and on about service or give you the one word summary TATArdquo
While their main adversary was the Maruti 800 Telco felt that it could also tap the mid size segment using the
selling point of space given by Indica They carried a campaign which said ldquoForget small cars we even make big
cars feel smallrdquo
It then went on to highlight the fact that Indica was Euro II compliant even before it was legally binding upon car
manufacturers to do so It also highlighted the concrete wall safety test that Indica withstands and tried to
showcase the car as a safe and strong car
39
Chapter 6 COST REDUCTION TECHNIQUES
IN TATA MOTORSrsquoS INDICA
40
Chapter 6 Tata Indica - The Making Of The Small Car
with objective of minimizing costs
The research provides an understanding of the issues concerning the supply chain management system at
Telco in regard to its small car Indica It outlines how Telco built the supply chain for the car by leveraging its
existing competencies and how it transformed itself from an integrated truck manufacturer to an automobile
integrator and from a product-centric company to competence- centric company The case discusses various
components of the supply chain and emphasises how Telco orchestrated them with the objective of minimizing
costs
ldquoTelcorsquos 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 comerdquo
- Business India March 22 1999
In the early 1990s Telcorsquos Chairman Ratan Tata (Tata) was flirting with the idea of developing a small
car By mid-1994 a rudimentary design was in place In 1995 Telco announced that it planned to build a car
which would be priced close to the Maruti 800 shaped like the Zen and spacious as an Ambassador
Producing the new small car ndash Indica ndash represented a different kind of challenge for Telco Should Tata succeed he
would change the face of Telco As a truck-maker Telco was so integrated that it even made it own castings and
forgings As an automaker it would have to focus on the value chain that stretched between raw materials and after-sales
41
service as well as assembling the parts into the complete automobile
For its new venture Telco outsourced 80 of the components (1200 of its 1500-plus parts) from 200-odd vendors To
develop the Indica Telco had to combine the learnings from its predecessors with its own unique supply chain
management strategies to ensure a sustainable low-cost platform
By learning to build and manage a supply chain it would set the ground for leveraging the capabilities of the
automotive component-manufacturers who already operated in its target markets In other words Telco planned
to use its skills as an integrator--bringing together products and services from both upstream and downstream
operations and packaging them for the customer under a brand name in its new venture
Globally a car could be built in 48 months with an investment of US $ 3 billion (Rs 1275 billion) Indica was
built in 31 months on a budget of Rs 17 billion This seemed to have been possible by focussing on the supply
chain
Chapter 61 THE OUTSOURCING STRATEGY
For Telco outsourcing seemed to be one of the most difficult aspects of producing the Indica Unlike global
automobile majors Ford Motors or General Motors which had a global vendor-base that could be replicated on
a smaller scale in India Telco had to create a vendor-base from scratch Moreover it did not have the expertise
either to design a car or to build an engine for it
Against this background Telco had to take its primary lsquomake-or-buyrsquo decisions for the key inputs-design
engine and transmission Telco decided to shop globally for the best deals and use its own expertise to make
42
whatever modifications were needed
(Refer Table I for the components outsourced by Telco)
TABLE I
OUTSOURCING THE COMPONENTS
Components Supplier
5 door hatchback IDEA Italy
Engine Institut Francais du Petrol
France
Assembly Line Nissanrsquos Plant Australia
Presses Mercedes Benz
Pistons and Piston rings India Pistons
Electrical components and fuel injection
systems Lucas-TVS
Steering systems Rane TRW Steering Systems
Clutch facings and rear (drum) brake linings Sundaram Brake Linings (SBL)
Seating Systems Tata-Johnson Controls
Radiators Tata-Toyo
Rear view mirrors Tata-Ficosa
Front and rear bumper dash-board inside
trims Tata-Auto Plastics
Air conditioning kits Subros Ltd
Wind screens and windows Asahi Glass
Fuel lines Imperial Auto
Differential assemblies Sona Steering
43
Sheet metal items JBM Tools
Source Business Today March 22 1999 and December 7 1999
Telco turned to the Italian company IDEA for the product-design It bought the engine from the Institut
Francais du Petrol of France and applied its engineering skills to adapt the engine requirements The transmission
was developed in-house at its Engineering Research Centre (ERC) at Pune Of the Rs 25 billion it spent on
designing the Indica the major share went in buying design tools and training its engineers in new skills Telcorsquos
engineers traveled regularly to the sites of its technology suppliers to receive training before the actual delivery
of the machines
Telco also outsourced its assembly line from Nissanrsquos plant in Australia for just Rs 900 million Telco
transplanted it at its factory at Chikli near Pune which was newly set up for Indica A new assembly line of the
same proportions would have cost at least Rs 4 billion Again of the 3 presses for the Indica only 1 was new
acquired for Rs 900 million while the other 2 were bought second-hand from Mercedes-Benz and modified to
suit the Indica
Telcorsquos engineers and the ERC did the application engineering programming installation and commissioning to
save around 45 of the technology costs The tooling for the car too was supplied internally by Telcorsquos machine
tool division To manage the supply chain better Telco kept the number of suppliers for Indica to just 200 as
compared to about 1000 for trucks Most of the parts were supplied by Telcorsquos traditional suppliersmdash TVS Rane
Group and Tata Auto Component Systems (Taco) who were single source suppliers Pressed parts assemblies
and drive shafts were sourced from single vendors
44
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
tremendous job to localize components at the right quality and price given the supplier problems in prevalent in
India
An Original Equipment Manufacturerrsquos competitive advantage lies in its marketing skills Having achieved price
and technology parity it can easily woo the consumer with attractive financing schemes and superior after-sales
service Nudged by the competition most auto players have a clutch of schemes to offer Daewoo Motors India
provides interestfree car finance Ford Motor and General Motors have slashed interest rates MULs joint
venture finance company Maruti Countrywide is offering loans at 1350 per cent when the prevailing lending
rate is 17 per cent and above
Chapter 44 The After Sales Service Scenario
After sales service for cars is as critical as showroom deals Maruti services its 2 million customers through an
army of 174 dealers spread across the country It will be impossible for a company to duplicate such
infrastructure particularly with investments in a metro-based showroom going up to Rs 4 crore Margins in
retailing are moving from actual sales to after sales service
The problem of price war is evident with Auto majors as much as with dealers In a bid to woo the customers
dealers particularly in non-prime locations are cutting their margins It will not be surprising if single-brand
dealers eventually turn into multi-brand sellers in future
Doing so will benefit all the three constituents in the marketing chain the OEM the dealer and the buyer The
carmaker can expand his reach without expensive investment the dealer can increase his revenue and the
customer gets a variety of models and brands under one roof in future
The local partner will be the loser in this fierce battle Without the means to make either matching equity or
technological investment the Indian collaborator will be driven off the road
28
It has already happened to the Rs 166-crore DCM which tied up with Daewoo Motors and can happen to both
the Rs 1258-crore Hindustan Motors (Partner General Motors) and the Rs 360657 crore Mahindra amp Mahindra
(Partner Ford Motor)
So they are reconciled to adopting a minority role or becoming auto component vendors This list includes
Siddharth Shrirams Rs 430-crore Siel (Partner Honda) the Kirloskars (Partner Toyota) and the Munjals of the
Rs 2000-crore Hero Group (Partner BMW) And the evidence is compelling eg Hindusthan Motors has a
passive role in its joint venture with General Motors although the Opel Astra is manufactured at HMs Halol plant
in Gujarat The same can be forecasted about Mahindra and Mahindrarsquos joint venture with Ford Motor What can
prolong the life of the joint venture is distribution muscle as it will take at least five years for a transnational auto
major to build a strong distribution channel in this country
By all accounts the auto industry is headed for a glut With an estimated demand for cars to touch 9 lakhs in
2001-2002 the installed capacity will rise to 16 lakhs So the current growth rate in Indian market is not
sustainable There will be at least two years of stagnant or declining demand before the resumption of the growth
trendThere is a projected demand of 1-lakh cars in the mid-segment alone by 2001-2002 And the car numbers
will add up to around 6 lakh a year That will engender a shakeout which is already afoot in the other Asian
markets For instance poor off -take and a consequent build-up of car inventories has led to a fierce price-war in
China
Chapter 45 Market Potential of Indian Automobile Segment
The demand for the small car will continue to drive growth for the next five years Of the total sales of Maruti in
2000-2001around 85 per cent were small cars The Esteems sales dropped in the same period where as the small
cars drove MULs sales So demand for small cars will leap only if certain conditions are fulfilled
29
Rise in the Income Levels In the US auto demand rises by 4 per cent for every 1 per cent increase in the real
Gross Domestic Product but this is irrelevant for India as only the top 150 per cent of the population
can afford a car The demand can shoot up if the income levels of the top 5 per cent continue to rise in future
Level Of Motorization It is stagnant at 170 cars per 1000 people for decades However in the post-liberalization
period the motorization level has leaped to 370 cars per 1000 Although it is still lower than the levels in the
developed markets motorization is bound to rise further in the coming years
Chapter 451 Vehicle Prices
Falling imports and excise duties coupled with competition will continue to boost demand and
the prices are likely to fall further at least in the short run
Chapter 452 Consumer Finance
Over 60 per cent of customers opt for consumer finance That figure could go up if interest
rates continue to fall
Chapter 453 Infrastructure
Traffic congestion and bad roads could deter potential buyers from going for small cars
particularly in small cities of India The future is not very heartening in this aspect
Chapter 454 Product Availability
As manufacturers shift their attention to the small car more and more people will be able to
afford it and demand will only rise in the future period of time
30
Chapter 46 The Future-Indian Automobile
There is a sharp contrast in the buying behavior of Indian Consumer compared to their western counter parts yet
there is no doubt that Indian car market is going to increasingly resemble the latter In the West the industry is
likely to be dominated by three or four major players With a likely demand of 11 lakh cars by 2006 there will be
a few niche players like BMW Mercedes-Benz and Audi with luxury cars to offer Unless car manufacturers
have a large range of vehicle to offer they will be unable to subsidize their costlier models
The market will consolidate to few segments The carmaker has to make diverse models based on diverse and
flexible platforms Products like the stripped-down economy car the sports utility vehicle or the van should be
built on the same platform For the price-sensitive customers there can be a no-frills version a loaded version for
the middle customer and luxury car manufacturers can target the high-end customers
The fortunes of the autoobile industry will continue to hinge on the large price sensitive customers who will
graduate to the higher end of the market over a period of time
Until then the small car will continue to drive demand and most of the car-manufacturers are
gearing up for this eventuality
31
Chapter 5 Company Profile
ldquoTata Motorsrdquo
32
CHAPTER 5 Company ProfileTata Motors
Tata Motors previously known as Tata Engineering and Locomotive Co Ltd (TELCO) is one of the largest
companies in the Tata Group and one of Indias largest business houses Tata Motors is Indias leading
commercial vehicle manufacturer and the third largest passenger car manufacturer The company is the sixth
largest truck manufacturer in the world Tata Motors recently received the Balanced Scorecard Collaborative Hall
of Fame Award for having achieved a significant turnaround of its overall performance A comprehensive quality
improvement and cost cutting initiative in September 2000 has played an important role in the companys
turnaround from a loss of Rs 500 crores in the year ended March 2001 to a profit of Rs 28 crores in the first
quarter of 2002-2003
Tata Engineering and Locomotive Company (TELCO)
Chapter 51 History amp Evolution
Tata Engineering and Locomotive Company Ltd popularly known as Telco was incorporated in 1945 to
manufacture steam locomotives In 1954 the company diversified into automobile manufacturing through a
collaboration with Daimler-Benz for the manufacture of commercial vehicles By the time the collaboration ended
in 1969 Telco had not only become an independent producer of medium commercial vehicles (MCVs) with
negligible import contentbut had developed the capability of designing and developing such vehicles The
Company progressively widened its product range to cover heavy commercial vehicles (HCVs) and light
commercial vehicles (LCVs) implementing one expansion program after another
To sustain the unrelenting pace of its growth Telco added machining press and assembly
33
capacities set up its own forge and foundries and virtually created the countryrsquos automobile ancillary industry
The Company even developed facilities for designing and manufacturing state-of-the-art machine tools material
handling equipment dies and fixtures To accommodate the Companyrsquos growing activity base a large modern
complex was set up at Pune in western India and a new plant became operational at Lucknow in the north of the
country
To provide a business focus for the Companyrsquos main activity areas Telco has created twobusiness unitsrsquo -
Automobiles and Construction Equipment ndash both of which have notched up record-breaking results
Telco today has a domestic market share of 68 in the MCVHCV segment 64 in the LCV segment and 32
in the multi-utility segment Apart from commercial vehicles which range from 1 ton to 35 tons GVW Telcorsquos
automobile products also include passenger vehicles and an extraordinarily popular multi-utility vehicle All these
products have been developed inhouse by the Companyrsquos own RampD Center This Center is equipped with the
latest computeraided design hardware and software enabling the company to respond quickly to changing
customer needs both in India and abroad
Telco has been exporting its products since 1969 and currently exports about a tenth of its
output Export markets include the Middle East Africa and Southeast Asia as well as
developed countries in Europe like France UK and Spain It is intended that exports should account for 20 of
the automobiles sold by the Company
Telcorsquos second line of business Construction Equipment has also grown rapidly and the
Company currently commands a 61 share in the excavator market and 90 in the crawler cranes market in
India The hydraulically operated construction equipment made by the company is in collaboration with Hitachi
34
Construction Machinery Limited of Japan There are ambitious plans for widening the range of excavators made
by the company and for adding new lines of construction equipment A recent addition to the excavator range is
Backhoe Loader
Telco is one of Indias largest private sector companies With a turnover of Rs 6637 billion it is the countrys
leading commercial vehicle manufacturer and the worldrsquos sixth largest automobile company
The widely successful Tata Indica which is Euro 1 and 2 compliant is the countryrsquos first
indigenously designed developed and manufactured passenger car The company also
makes several other passengers vehicles including the Safari the Sumo the Sierra the Tata Estate and the
Tatamobile pick-up
The companyrsquos products have received wide acceptance not only in India but also in markets in the Middle East
Asia Africa and Europe
Chapter 52 Areas of business
The company manufactures medium heavy and light commercial vehicles multi-utility
vehicles and passenger cars It also makes general and special purpose machines for
automotive applications at its machine tool division These include NCCNC horizontal and inline machining
centers flexible manufacturing systems CNC cylindrical grinding machines and robots for welding cutting
painting and other applications
In 1999 the companyrsquos revenues from its four manufacturing plants at three locations in India were Rs 6637
billion ($15735 million) In 1998 they were Rs 7026 billion ($1893 million) (The average exchange rate in
1999 was Rs 4218 to one US dollar)
35
In the year ended 31 March 2000 the companyrsquos total exports were worth about Rs 50553 crore against about
Rs 60078 crore in the previous year
Locations
The companyrsquos manufacturing plants in India are at Jamshedpur in Bihar Pimpri and
Chinchwad near Pune in Maharashtra and Lucknow in Uttar Pradesh A fifth manufacturing facility is being set
up at Dharwad in Karnataka
Collaborations
The Company has technical tie-ups with
bull The Institute of Development in Automotive Engineering SPA Italy for assistance in
small car body design and styling
bull Nachi Fujikoshi Corporation Japan for robots for welding painting and other
automotive applications
bull Le Moteur Moderne France for the development of diesel and petrol engines for
passenger cars and
bull Robert Bausch GmbH Germany for application work on the engine management
system for 4 PL petrol engines
36
Chapter 53 Tata Motors ndashSuccessful Car Indica
TELCO launched Indica when the TATA group was in red Telco chairman Ratan Tata said that the 1400 cc car
Indica would drive the company out of the red
Tata while talking to reporters at the IETF 99 in a videoconference from Mumbai said that the overwhelming
response of over 125 lakh initial bookings for the Indica had come as a surprise It seems we touched the
national chord somewhere as people responded to the fact that this is the first Indian car said Tata Indica is not
the end of the road for Telco when it comes to passenger cars It is just the beginning as there are more to come
said Tata adding that the company was working on another mid-size car after Indica
Telco had to produce 60000 cars a year to break-even The group created two
organizations within Telco one dealing with commercial vehicles and the other with passenger cars The
company under took a major restructuring exercise whereby the passenger car and commercial vehicles divisions
would function as two separate business units Telco had a strategy to go for exports after addressing the initial
requirements of the domestic market
Awards and Recognition
In May 2000 Tata Engineering and Locomotive Company Ltd (Telco) won a national award for successful
indigenous technology used in the Indica car project The award titled National award for successful
commercialization of indigenous technology by an industrial concern for indigenous development and
commercialization of Tata Indica car was presented by the minister for human resource development science and
technology and ocean development
Dr Murli Manohar Joshi
37
In November 1999 Telco was awarded the Department of scientific and industrial research
national award for indigenous design of the Tata Indica It was the first company in India to implement stringent
emission norms well ahead of the mandate dates
Promotions
The Indica advertising made interest for the car go into overdrive The campaign revolved around the premise that
the Indica would not just meet peoples expectations it would exceed them Every advertisement has a story to
tell
Pre launch Campaign
The Indica campaign began in the right earnest in December 1998 It was advertised as the launch of a car that
will spell doom for the small cars It was directly aimed at Maruti 800 The ad line used in the first campaign was
ldquoCar makers will suddenly remember all the thing they forgot to give yourdquo This hinted that Indica would have
more features than any of the existing small cars Indica used the catch lines like ldquo More car per Carrdquo ldquoMore
dreams per carrdquo to suggest that Indica will be bigger in size to the existing small cars yet be in the small car
category It competes with the mid size cars on size and give them a run for their money with its cheaper price
tag
At the launch of the car TELCO claimed that the people would never have to suffer from a small car again and
that the n end of the year (1998) would be the end of the small cars
Launch Campaign
The launch campaign of Indica focussed on the many advantages that it offered over other cars in the same
segment It promised the customers more than the current offerings Its first advertisement carried the following
catch line ldquo50cc moped 100cc bike 800cc car Time you asked for morerdquo
38
It then concentrated its efforts on criticizing the negative aspects of Maruti 800 and highlighted how Indica has
removed those very defects and presented a very sophisticated and modern car to the Indian customer It even
pointed out that the shape of Maruti was very unconventional and that people would prefer the shape of Indica to
Maruti 800 The advertisement read ldquo Box shaped bubble shaped wedge shaped But then Gentlemen prefer
curvesrdquo
The launch campaign also focussed on the roomy interiors of Indica a feature not offered by Maruti at that point
of time Also the expertise of TATA in diesel engines and fuel efficiency of these were the highlight of the launch
campaign of Tata Indica
Post Launch Campaigns
While the Launch campaign focussed on the features of Indica the post launch advertisements focussed on the
superior after sales service and longer warranty periods offered by Indica
Telco was the first company to offer an 18-month warranty period on engine parts The most famous line used
during this campaign was ldquoWe could go on and on about service or give you the one word summary TATArdquo
While their main adversary was the Maruti 800 Telco felt that it could also tap the mid size segment using the
selling point of space given by Indica They carried a campaign which said ldquoForget small cars we even make big
cars feel smallrdquo
It then went on to highlight the fact that Indica was Euro II compliant even before it was legally binding upon car
manufacturers to do so It also highlighted the concrete wall safety test that Indica withstands and tried to
showcase the car as a safe and strong car
39
Chapter 6 COST REDUCTION TECHNIQUES
IN TATA MOTORSrsquoS INDICA
40
Chapter 6 Tata Indica - The Making Of The Small Car
with objective of minimizing costs
The research provides an understanding of the issues concerning the supply chain management system at
Telco in regard to its small car Indica It outlines how Telco built the supply chain for the car by leveraging its
existing competencies and how it transformed itself from an integrated truck manufacturer to an automobile
integrator and from a product-centric company to competence- centric company The case discusses various
components of the supply chain and emphasises how Telco orchestrated them with the objective of minimizing
costs
ldquoTelcorsquos 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 comerdquo
- Business India March 22 1999
In the early 1990s Telcorsquos Chairman Ratan Tata (Tata) was flirting with the idea of developing a small
car By mid-1994 a rudimentary design was in place In 1995 Telco announced that it planned to build a car
which would be priced close to the Maruti 800 shaped like the Zen and spacious as an Ambassador
Producing the new small car ndash Indica ndash represented a different kind of challenge for Telco Should Tata succeed he
would change the face of Telco As a truck-maker Telco was so integrated that it even made it own castings and
forgings As an automaker it would have to focus on the value chain that stretched between raw materials and after-sales
41
service as well as assembling the parts into the complete automobile
For its new venture Telco outsourced 80 of the components (1200 of its 1500-plus parts) from 200-odd vendors To
develop the Indica Telco had to combine the learnings from its predecessors with its own unique supply chain
management strategies to ensure a sustainable low-cost platform
By learning to build and manage a supply chain it would set the ground for leveraging the capabilities of the
automotive component-manufacturers who already operated in its target markets In other words Telco planned
to use its skills as an integrator--bringing together products and services from both upstream and downstream
operations and packaging them for the customer under a brand name in its new venture
Globally a car could be built in 48 months with an investment of US $ 3 billion (Rs 1275 billion) Indica was
built in 31 months on a budget of Rs 17 billion This seemed to have been possible by focussing on the supply
chain
Chapter 61 THE OUTSOURCING STRATEGY
For Telco outsourcing seemed to be one of the most difficult aspects of producing the Indica Unlike global
automobile majors Ford Motors or General Motors which had a global vendor-base that could be replicated on
a smaller scale in India Telco had to create a vendor-base from scratch Moreover it did not have the expertise
either to design a car or to build an engine for it
Against this background Telco had to take its primary lsquomake-or-buyrsquo decisions for the key inputs-design
engine and transmission Telco decided to shop globally for the best deals and use its own expertise to make
42
whatever modifications were needed
(Refer Table I for the components outsourced by Telco)
TABLE I
OUTSOURCING THE COMPONENTS
Components Supplier
5 door hatchback IDEA Italy
Engine Institut Francais du Petrol
France
Assembly Line Nissanrsquos Plant Australia
Presses Mercedes Benz
Pistons and Piston rings India Pistons
Electrical components and fuel injection
systems Lucas-TVS
Steering systems Rane TRW Steering Systems
Clutch facings and rear (drum) brake linings Sundaram Brake Linings (SBL)
Seating Systems Tata-Johnson Controls
Radiators Tata-Toyo
Rear view mirrors Tata-Ficosa
Front and rear bumper dash-board inside
trims Tata-Auto Plastics
Air conditioning kits Subros Ltd
Wind screens and windows Asahi Glass
Fuel lines Imperial Auto
Differential assemblies Sona Steering
43
Sheet metal items JBM Tools
Source Business Today March 22 1999 and December 7 1999
Telco turned to the Italian company IDEA for the product-design It bought the engine from the Institut
Francais du Petrol of France and applied its engineering skills to adapt the engine requirements The transmission
was developed in-house at its Engineering Research Centre (ERC) at Pune Of the Rs 25 billion it spent on
designing the Indica the major share went in buying design tools and training its engineers in new skills Telcorsquos
engineers traveled regularly to the sites of its technology suppliers to receive training before the actual delivery
of the machines
Telco also outsourced its assembly line from Nissanrsquos plant in Australia for just Rs 900 million Telco
transplanted it at its factory at Chikli near Pune which was newly set up for Indica A new assembly line of the
same proportions would have cost at least Rs 4 billion Again of the 3 presses for the Indica only 1 was new
acquired for Rs 900 million while the other 2 were bought second-hand from Mercedes-Benz and modified to
suit the Indica
Telcorsquos engineers and the ERC did the application engineering programming installation and commissioning to
save around 45 of the technology costs The tooling for the car too was supplied internally by Telcorsquos machine
tool division To manage the supply chain better Telco kept the number of suppliers for Indica to just 200 as
compared to about 1000 for trucks Most of the parts were supplied by Telcorsquos traditional suppliersmdash TVS Rane
Group and Tata Auto Component Systems (Taco) who were single source suppliers Pressed parts assemblies
and drive shafts were sourced from single vendors
44
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
It has already happened to the Rs 166-crore DCM which tied up with Daewoo Motors and can happen to both
the Rs 1258-crore Hindustan Motors (Partner General Motors) and the Rs 360657 crore Mahindra amp Mahindra
(Partner Ford Motor)
So they are reconciled to adopting a minority role or becoming auto component vendors This list includes
Siddharth Shrirams Rs 430-crore Siel (Partner Honda) the Kirloskars (Partner Toyota) and the Munjals of the
Rs 2000-crore Hero Group (Partner BMW) And the evidence is compelling eg Hindusthan Motors has a
passive role in its joint venture with General Motors although the Opel Astra is manufactured at HMs Halol plant
in Gujarat The same can be forecasted about Mahindra and Mahindrarsquos joint venture with Ford Motor What can
prolong the life of the joint venture is distribution muscle as it will take at least five years for a transnational auto
major to build a strong distribution channel in this country
By all accounts the auto industry is headed for a glut With an estimated demand for cars to touch 9 lakhs in
2001-2002 the installed capacity will rise to 16 lakhs So the current growth rate in Indian market is not
sustainable There will be at least two years of stagnant or declining demand before the resumption of the growth
trendThere is a projected demand of 1-lakh cars in the mid-segment alone by 2001-2002 And the car numbers
will add up to around 6 lakh a year That will engender a shakeout which is already afoot in the other Asian
markets For instance poor off -take and a consequent build-up of car inventories has led to a fierce price-war in
China
Chapter 45 Market Potential of Indian Automobile Segment
The demand for the small car will continue to drive growth for the next five years Of the total sales of Maruti in
2000-2001around 85 per cent were small cars The Esteems sales dropped in the same period where as the small
cars drove MULs sales So demand for small cars will leap only if certain conditions are fulfilled
29
Rise in the Income Levels In the US auto demand rises by 4 per cent for every 1 per cent increase in the real
Gross Domestic Product but this is irrelevant for India as only the top 150 per cent of the population
can afford a car The demand can shoot up if the income levels of the top 5 per cent continue to rise in future
Level Of Motorization It is stagnant at 170 cars per 1000 people for decades However in the post-liberalization
period the motorization level has leaped to 370 cars per 1000 Although it is still lower than the levels in the
developed markets motorization is bound to rise further in the coming years
Chapter 451 Vehicle Prices
Falling imports and excise duties coupled with competition will continue to boost demand and
the prices are likely to fall further at least in the short run
Chapter 452 Consumer Finance
Over 60 per cent of customers opt for consumer finance That figure could go up if interest
rates continue to fall
Chapter 453 Infrastructure
Traffic congestion and bad roads could deter potential buyers from going for small cars
particularly in small cities of India The future is not very heartening in this aspect
Chapter 454 Product Availability
As manufacturers shift their attention to the small car more and more people will be able to
afford it and demand will only rise in the future period of time
30
Chapter 46 The Future-Indian Automobile
There is a sharp contrast in the buying behavior of Indian Consumer compared to their western counter parts yet
there is no doubt that Indian car market is going to increasingly resemble the latter In the West the industry is
likely to be dominated by three or four major players With a likely demand of 11 lakh cars by 2006 there will be
a few niche players like BMW Mercedes-Benz and Audi with luxury cars to offer Unless car manufacturers
have a large range of vehicle to offer they will be unable to subsidize their costlier models
The market will consolidate to few segments The carmaker has to make diverse models based on diverse and
flexible platforms Products like the stripped-down economy car the sports utility vehicle or the van should be
built on the same platform For the price-sensitive customers there can be a no-frills version a loaded version for
the middle customer and luxury car manufacturers can target the high-end customers
The fortunes of the autoobile industry will continue to hinge on the large price sensitive customers who will
graduate to the higher end of the market over a period of time
Until then the small car will continue to drive demand and most of the car-manufacturers are
gearing up for this eventuality
31
Chapter 5 Company Profile
ldquoTata Motorsrdquo
32
CHAPTER 5 Company ProfileTata Motors
Tata Motors previously known as Tata Engineering and Locomotive Co Ltd (TELCO) is one of the largest
companies in the Tata Group and one of Indias largest business houses Tata Motors is Indias leading
commercial vehicle manufacturer and the third largest passenger car manufacturer The company is the sixth
largest truck manufacturer in the world Tata Motors recently received the Balanced Scorecard Collaborative Hall
of Fame Award for having achieved a significant turnaround of its overall performance A comprehensive quality
improvement and cost cutting initiative in September 2000 has played an important role in the companys
turnaround from a loss of Rs 500 crores in the year ended March 2001 to a profit of Rs 28 crores in the first
quarter of 2002-2003
Tata Engineering and Locomotive Company (TELCO)
Chapter 51 History amp Evolution
Tata Engineering and Locomotive Company Ltd popularly known as Telco was incorporated in 1945 to
manufacture steam locomotives In 1954 the company diversified into automobile manufacturing through a
collaboration with Daimler-Benz for the manufacture of commercial vehicles By the time the collaboration ended
in 1969 Telco had not only become an independent producer of medium commercial vehicles (MCVs) with
negligible import contentbut had developed the capability of designing and developing such vehicles The
Company progressively widened its product range to cover heavy commercial vehicles (HCVs) and light
commercial vehicles (LCVs) implementing one expansion program after another
To sustain the unrelenting pace of its growth Telco added machining press and assembly
33
capacities set up its own forge and foundries and virtually created the countryrsquos automobile ancillary industry
The Company even developed facilities for designing and manufacturing state-of-the-art machine tools material
handling equipment dies and fixtures To accommodate the Companyrsquos growing activity base a large modern
complex was set up at Pune in western India and a new plant became operational at Lucknow in the north of the
country
To provide a business focus for the Companyrsquos main activity areas Telco has created twobusiness unitsrsquo -
Automobiles and Construction Equipment ndash both of which have notched up record-breaking results
Telco today has a domestic market share of 68 in the MCVHCV segment 64 in the LCV segment and 32
in the multi-utility segment Apart from commercial vehicles which range from 1 ton to 35 tons GVW Telcorsquos
automobile products also include passenger vehicles and an extraordinarily popular multi-utility vehicle All these
products have been developed inhouse by the Companyrsquos own RampD Center This Center is equipped with the
latest computeraided design hardware and software enabling the company to respond quickly to changing
customer needs both in India and abroad
Telco has been exporting its products since 1969 and currently exports about a tenth of its
output Export markets include the Middle East Africa and Southeast Asia as well as
developed countries in Europe like France UK and Spain It is intended that exports should account for 20 of
the automobiles sold by the Company
Telcorsquos second line of business Construction Equipment has also grown rapidly and the
Company currently commands a 61 share in the excavator market and 90 in the crawler cranes market in
India The hydraulically operated construction equipment made by the company is in collaboration with Hitachi
34
Construction Machinery Limited of Japan There are ambitious plans for widening the range of excavators made
by the company and for adding new lines of construction equipment A recent addition to the excavator range is
Backhoe Loader
Telco is one of Indias largest private sector companies With a turnover of Rs 6637 billion it is the countrys
leading commercial vehicle manufacturer and the worldrsquos sixth largest automobile company
The widely successful Tata Indica which is Euro 1 and 2 compliant is the countryrsquos first
indigenously designed developed and manufactured passenger car The company also
makes several other passengers vehicles including the Safari the Sumo the Sierra the Tata Estate and the
Tatamobile pick-up
The companyrsquos products have received wide acceptance not only in India but also in markets in the Middle East
Asia Africa and Europe
Chapter 52 Areas of business
The company manufactures medium heavy and light commercial vehicles multi-utility
vehicles and passenger cars It also makes general and special purpose machines for
automotive applications at its machine tool division These include NCCNC horizontal and inline machining
centers flexible manufacturing systems CNC cylindrical grinding machines and robots for welding cutting
painting and other applications
In 1999 the companyrsquos revenues from its four manufacturing plants at three locations in India were Rs 6637
billion ($15735 million) In 1998 they were Rs 7026 billion ($1893 million) (The average exchange rate in
1999 was Rs 4218 to one US dollar)
35
In the year ended 31 March 2000 the companyrsquos total exports were worth about Rs 50553 crore against about
Rs 60078 crore in the previous year
Locations
The companyrsquos manufacturing plants in India are at Jamshedpur in Bihar Pimpri and
Chinchwad near Pune in Maharashtra and Lucknow in Uttar Pradesh A fifth manufacturing facility is being set
up at Dharwad in Karnataka
Collaborations
The Company has technical tie-ups with
bull The Institute of Development in Automotive Engineering SPA Italy for assistance in
small car body design and styling
bull Nachi Fujikoshi Corporation Japan for robots for welding painting and other
automotive applications
bull Le Moteur Moderne France for the development of diesel and petrol engines for
passenger cars and
bull Robert Bausch GmbH Germany for application work on the engine management
system for 4 PL petrol engines
36
Chapter 53 Tata Motors ndashSuccessful Car Indica
TELCO launched Indica when the TATA group was in red Telco chairman Ratan Tata said that the 1400 cc car
Indica would drive the company out of the red
Tata while talking to reporters at the IETF 99 in a videoconference from Mumbai said that the overwhelming
response of over 125 lakh initial bookings for the Indica had come as a surprise It seems we touched the
national chord somewhere as people responded to the fact that this is the first Indian car said Tata Indica is not
the end of the road for Telco when it comes to passenger cars It is just the beginning as there are more to come
said Tata adding that the company was working on another mid-size car after Indica
Telco had to produce 60000 cars a year to break-even The group created two
organizations within Telco one dealing with commercial vehicles and the other with passenger cars The
company under took a major restructuring exercise whereby the passenger car and commercial vehicles divisions
would function as two separate business units Telco had a strategy to go for exports after addressing the initial
requirements of the domestic market
Awards and Recognition
In May 2000 Tata Engineering and Locomotive Company Ltd (Telco) won a national award for successful
indigenous technology used in the Indica car project The award titled National award for successful
commercialization of indigenous technology by an industrial concern for indigenous development and
commercialization of Tata Indica car was presented by the minister for human resource development science and
technology and ocean development
Dr Murli Manohar Joshi
37
In November 1999 Telco was awarded the Department of scientific and industrial research
national award for indigenous design of the Tata Indica It was the first company in India to implement stringent
emission norms well ahead of the mandate dates
Promotions
The Indica advertising made interest for the car go into overdrive The campaign revolved around the premise that
the Indica would not just meet peoples expectations it would exceed them Every advertisement has a story to
tell
Pre launch Campaign
The Indica campaign began in the right earnest in December 1998 It was advertised as the launch of a car that
will spell doom for the small cars It was directly aimed at Maruti 800 The ad line used in the first campaign was
ldquoCar makers will suddenly remember all the thing they forgot to give yourdquo This hinted that Indica would have
more features than any of the existing small cars Indica used the catch lines like ldquo More car per Carrdquo ldquoMore
dreams per carrdquo to suggest that Indica will be bigger in size to the existing small cars yet be in the small car
category It competes with the mid size cars on size and give them a run for their money with its cheaper price
tag
At the launch of the car TELCO claimed that the people would never have to suffer from a small car again and
that the n end of the year (1998) would be the end of the small cars
Launch Campaign
The launch campaign of Indica focussed on the many advantages that it offered over other cars in the same
segment It promised the customers more than the current offerings Its first advertisement carried the following
catch line ldquo50cc moped 100cc bike 800cc car Time you asked for morerdquo
38
It then concentrated its efforts on criticizing the negative aspects of Maruti 800 and highlighted how Indica has
removed those very defects and presented a very sophisticated and modern car to the Indian customer It even
pointed out that the shape of Maruti was very unconventional and that people would prefer the shape of Indica to
Maruti 800 The advertisement read ldquo Box shaped bubble shaped wedge shaped But then Gentlemen prefer
curvesrdquo
The launch campaign also focussed on the roomy interiors of Indica a feature not offered by Maruti at that point
of time Also the expertise of TATA in diesel engines and fuel efficiency of these were the highlight of the launch
campaign of Tata Indica
Post Launch Campaigns
While the Launch campaign focussed on the features of Indica the post launch advertisements focussed on the
superior after sales service and longer warranty periods offered by Indica
Telco was the first company to offer an 18-month warranty period on engine parts The most famous line used
during this campaign was ldquoWe could go on and on about service or give you the one word summary TATArdquo
While their main adversary was the Maruti 800 Telco felt that it could also tap the mid size segment using the
selling point of space given by Indica They carried a campaign which said ldquoForget small cars we even make big
cars feel smallrdquo
It then went on to highlight the fact that Indica was Euro II compliant even before it was legally binding upon car
manufacturers to do so It also highlighted the concrete wall safety test that Indica withstands and tried to
showcase the car as a safe and strong car
39
Chapter 6 COST REDUCTION TECHNIQUES
IN TATA MOTORSrsquoS INDICA
40
Chapter 6 Tata Indica - The Making Of The Small Car
with objective of minimizing costs
The research provides an understanding of the issues concerning the supply chain management system at
Telco in regard to its small car Indica It outlines how Telco built the supply chain for the car by leveraging its
existing competencies and how it transformed itself from an integrated truck manufacturer to an automobile
integrator and from a product-centric company to competence- centric company The case discusses various
components of the supply chain and emphasises how Telco orchestrated them with the objective of minimizing
costs
ldquoTelcorsquos 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 comerdquo
- Business India March 22 1999
In the early 1990s Telcorsquos Chairman Ratan Tata (Tata) was flirting with the idea of developing a small
car By mid-1994 a rudimentary design was in place In 1995 Telco announced that it planned to build a car
which would be priced close to the Maruti 800 shaped like the Zen and spacious as an Ambassador
Producing the new small car ndash Indica ndash represented a different kind of challenge for Telco Should Tata succeed he
would change the face of Telco As a truck-maker Telco was so integrated that it even made it own castings and
forgings As an automaker it would have to focus on the value chain that stretched between raw materials and after-sales
41
service as well as assembling the parts into the complete automobile
For its new venture Telco outsourced 80 of the components (1200 of its 1500-plus parts) from 200-odd vendors To
develop the Indica Telco had to combine the learnings from its predecessors with its own unique supply chain
management strategies to ensure a sustainable low-cost platform
By learning to build and manage a supply chain it would set the ground for leveraging the capabilities of the
automotive component-manufacturers who already operated in its target markets In other words Telco planned
to use its skills as an integrator--bringing together products and services from both upstream and downstream
operations and packaging them for the customer under a brand name in its new venture
Globally a car could be built in 48 months with an investment of US $ 3 billion (Rs 1275 billion) Indica was
built in 31 months on a budget of Rs 17 billion This seemed to have been possible by focussing on the supply
chain
Chapter 61 THE OUTSOURCING STRATEGY
For Telco outsourcing seemed to be one of the most difficult aspects of producing the Indica Unlike global
automobile majors Ford Motors or General Motors which had a global vendor-base that could be replicated on
a smaller scale in India Telco had to create a vendor-base from scratch Moreover it did not have the expertise
either to design a car or to build an engine for it
Against this background Telco had to take its primary lsquomake-or-buyrsquo decisions for the key inputs-design
engine and transmission Telco decided to shop globally for the best deals and use its own expertise to make
42
whatever modifications were needed
(Refer Table I for the components outsourced by Telco)
TABLE I
OUTSOURCING THE COMPONENTS
Components Supplier
5 door hatchback IDEA Italy
Engine Institut Francais du Petrol
France
Assembly Line Nissanrsquos Plant Australia
Presses Mercedes Benz
Pistons and Piston rings India Pistons
Electrical components and fuel injection
systems Lucas-TVS
Steering systems Rane TRW Steering Systems
Clutch facings and rear (drum) brake linings Sundaram Brake Linings (SBL)
Seating Systems Tata-Johnson Controls
Radiators Tata-Toyo
Rear view mirrors Tata-Ficosa
Front and rear bumper dash-board inside
trims Tata-Auto Plastics
Air conditioning kits Subros Ltd
Wind screens and windows Asahi Glass
Fuel lines Imperial Auto
Differential assemblies Sona Steering
43
Sheet metal items JBM Tools
Source Business Today March 22 1999 and December 7 1999
Telco turned to the Italian company IDEA for the product-design It bought the engine from the Institut
Francais du Petrol of France and applied its engineering skills to adapt the engine requirements The transmission
was developed in-house at its Engineering Research Centre (ERC) at Pune Of the Rs 25 billion it spent on
designing the Indica the major share went in buying design tools and training its engineers in new skills Telcorsquos
engineers traveled regularly to the sites of its technology suppliers to receive training before the actual delivery
of the machines
Telco also outsourced its assembly line from Nissanrsquos plant in Australia for just Rs 900 million Telco
transplanted it at its factory at Chikli near Pune which was newly set up for Indica A new assembly line of the
same proportions would have cost at least Rs 4 billion Again of the 3 presses for the Indica only 1 was new
acquired for Rs 900 million while the other 2 were bought second-hand from Mercedes-Benz and modified to
suit the Indica
Telcorsquos engineers and the ERC did the application engineering programming installation and commissioning to
save around 45 of the technology costs The tooling for the car too was supplied internally by Telcorsquos machine
tool division To manage the supply chain better Telco kept the number of suppliers for Indica to just 200 as
compared to about 1000 for trucks Most of the parts were supplied by Telcorsquos traditional suppliersmdash TVS Rane
Group and Tata Auto Component Systems (Taco) who were single source suppliers Pressed parts assemblies
and drive shafts were sourced from single vendors
44
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
Rise in the Income Levels In the US auto demand rises by 4 per cent for every 1 per cent increase in the real
Gross Domestic Product but this is irrelevant for India as only the top 150 per cent of the population
can afford a car The demand can shoot up if the income levels of the top 5 per cent continue to rise in future
Level Of Motorization It is stagnant at 170 cars per 1000 people for decades However in the post-liberalization
period the motorization level has leaped to 370 cars per 1000 Although it is still lower than the levels in the
developed markets motorization is bound to rise further in the coming years
Chapter 451 Vehicle Prices
Falling imports and excise duties coupled with competition will continue to boost demand and
the prices are likely to fall further at least in the short run
Chapter 452 Consumer Finance
Over 60 per cent of customers opt for consumer finance That figure could go up if interest
rates continue to fall
Chapter 453 Infrastructure
Traffic congestion and bad roads could deter potential buyers from going for small cars
particularly in small cities of India The future is not very heartening in this aspect
Chapter 454 Product Availability
As manufacturers shift their attention to the small car more and more people will be able to
afford it and demand will only rise in the future period of time
30
Chapter 46 The Future-Indian Automobile
There is a sharp contrast in the buying behavior of Indian Consumer compared to their western counter parts yet
there is no doubt that Indian car market is going to increasingly resemble the latter In the West the industry is
likely to be dominated by three or four major players With a likely demand of 11 lakh cars by 2006 there will be
a few niche players like BMW Mercedes-Benz and Audi with luxury cars to offer Unless car manufacturers
have a large range of vehicle to offer they will be unable to subsidize their costlier models
The market will consolidate to few segments The carmaker has to make diverse models based on diverse and
flexible platforms Products like the stripped-down economy car the sports utility vehicle or the van should be
built on the same platform For the price-sensitive customers there can be a no-frills version a loaded version for
the middle customer and luxury car manufacturers can target the high-end customers
The fortunes of the autoobile industry will continue to hinge on the large price sensitive customers who will
graduate to the higher end of the market over a period of time
Until then the small car will continue to drive demand and most of the car-manufacturers are
gearing up for this eventuality
31
Chapter 5 Company Profile
ldquoTata Motorsrdquo
32
CHAPTER 5 Company ProfileTata Motors
Tata Motors previously known as Tata Engineering and Locomotive Co Ltd (TELCO) is one of the largest
companies in the Tata Group and one of Indias largest business houses Tata Motors is Indias leading
commercial vehicle manufacturer and the third largest passenger car manufacturer The company is the sixth
largest truck manufacturer in the world Tata Motors recently received the Balanced Scorecard Collaborative Hall
of Fame Award for having achieved a significant turnaround of its overall performance A comprehensive quality
improvement and cost cutting initiative in September 2000 has played an important role in the companys
turnaround from a loss of Rs 500 crores in the year ended March 2001 to a profit of Rs 28 crores in the first
quarter of 2002-2003
Tata Engineering and Locomotive Company (TELCO)
Chapter 51 History amp Evolution
Tata Engineering and Locomotive Company Ltd popularly known as Telco was incorporated in 1945 to
manufacture steam locomotives In 1954 the company diversified into automobile manufacturing through a
collaboration with Daimler-Benz for the manufacture of commercial vehicles By the time the collaboration ended
in 1969 Telco had not only become an independent producer of medium commercial vehicles (MCVs) with
negligible import contentbut had developed the capability of designing and developing such vehicles The
Company progressively widened its product range to cover heavy commercial vehicles (HCVs) and light
commercial vehicles (LCVs) implementing one expansion program after another
To sustain the unrelenting pace of its growth Telco added machining press and assembly
33
capacities set up its own forge and foundries and virtually created the countryrsquos automobile ancillary industry
The Company even developed facilities for designing and manufacturing state-of-the-art machine tools material
handling equipment dies and fixtures To accommodate the Companyrsquos growing activity base a large modern
complex was set up at Pune in western India and a new plant became operational at Lucknow in the north of the
country
To provide a business focus for the Companyrsquos main activity areas Telco has created twobusiness unitsrsquo -
Automobiles and Construction Equipment ndash both of which have notched up record-breaking results
Telco today has a domestic market share of 68 in the MCVHCV segment 64 in the LCV segment and 32
in the multi-utility segment Apart from commercial vehicles which range from 1 ton to 35 tons GVW Telcorsquos
automobile products also include passenger vehicles and an extraordinarily popular multi-utility vehicle All these
products have been developed inhouse by the Companyrsquos own RampD Center This Center is equipped with the
latest computeraided design hardware and software enabling the company to respond quickly to changing
customer needs both in India and abroad
Telco has been exporting its products since 1969 and currently exports about a tenth of its
output Export markets include the Middle East Africa and Southeast Asia as well as
developed countries in Europe like France UK and Spain It is intended that exports should account for 20 of
the automobiles sold by the Company
Telcorsquos second line of business Construction Equipment has also grown rapidly and the
Company currently commands a 61 share in the excavator market and 90 in the crawler cranes market in
India The hydraulically operated construction equipment made by the company is in collaboration with Hitachi
34
Construction Machinery Limited of Japan There are ambitious plans for widening the range of excavators made
by the company and for adding new lines of construction equipment A recent addition to the excavator range is
Backhoe Loader
Telco is one of Indias largest private sector companies With a turnover of Rs 6637 billion it is the countrys
leading commercial vehicle manufacturer and the worldrsquos sixth largest automobile company
The widely successful Tata Indica which is Euro 1 and 2 compliant is the countryrsquos first
indigenously designed developed and manufactured passenger car The company also
makes several other passengers vehicles including the Safari the Sumo the Sierra the Tata Estate and the
Tatamobile pick-up
The companyrsquos products have received wide acceptance not only in India but also in markets in the Middle East
Asia Africa and Europe
Chapter 52 Areas of business
The company manufactures medium heavy and light commercial vehicles multi-utility
vehicles and passenger cars It also makes general and special purpose machines for
automotive applications at its machine tool division These include NCCNC horizontal and inline machining
centers flexible manufacturing systems CNC cylindrical grinding machines and robots for welding cutting
painting and other applications
In 1999 the companyrsquos revenues from its four manufacturing plants at three locations in India were Rs 6637
billion ($15735 million) In 1998 they were Rs 7026 billion ($1893 million) (The average exchange rate in
1999 was Rs 4218 to one US dollar)
35
In the year ended 31 March 2000 the companyrsquos total exports were worth about Rs 50553 crore against about
Rs 60078 crore in the previous year
Locations
The companyrsquos manufacturing plants in India are at Jamshedpur in Bihar Pimpri and
Chinchwad near Pune in Maharashtra and Lucknow in Uttar Pradesh A fifth manufacturing facility is being set
up at Dharwad in Karnataka
Collaborations
The Company has technical tie-ups with
bull The Institute of Development in Automotive Engineering SPA Italy for assistance in
small car body design and styling
bull Nachi Fujikoshi Corporation Japan for robots for welding painting and other
automotive applications
bull Le Moteur Moderne France for the development of diesel and petrol engines for
passenger cars and
bull Robert Bausch GmbH Germany for application work on the engine management
system for 4 PL petrol engines
36
Chapter 53 Tata Motors ndashSuccessful Car Indica
TELCO launched Indica when the TATA group was in red Telco chairman Ratan Tata said that the 1400 cc car
Indica would drive the company out of the red
Tata while talking to reporters at the IETF 99 in a videoconference from Mumbai said that the overwhelming
response of over 125 lakh initial bookings for the Indica had come as a surprise It seems we touched the
national chord somewhere as people responded to the fact that this is the first Indian car said Tata Indica is not
the end of the road for Telco when it comes to passenger cars It is just the beginning as there are more to come
said Tata adding that the company was working on another mid-size car after Indica
Telco had to produce 60000 cars a year to break-even The group created two
organizations within Telco one dealing with commercial vehicles and the other with passenger cars The
company under took a major restructuring exercise whereby the passenger car and commercial vehicles divisions
would function as two separate business units Telco had a strategy to go for exports after addressing the initial
requirements of the domestic market
Awards and Recognition
In May 2000 Tata Engineering and Locomotive Company Ltd (Telco) won a national award for successful
indigenous technology used in the Indica car project The award titled National award for successful
commercialization of indigenous technology by an industrial concern for indigenous development and
commercialization of Tata Indica car was presented by the minister for human resource development science and
technology and ocean development
Dr Murli Manohar Joshi
37
In November 1999 Telco was awarded the Department of scientific and industrial research
national award for indigenous design of the Tata Indica It was the first company in India to implement stringent
emission norms well ahead of the mandate dates
Promotions
The Indica advertising made interest for the car go into overdrive The campaign revolved around the premise that
the Indica would not just meet peoples expectations it would exceed them Every advertisement has a story to
tell
Pre launch Campaign
The Indica campaign began in the right earnest in December 1998 It was advertised as the launch of a car that
will spell doom for the small cars It was directly aimed at Maruti 800 The ad line used in the first campaign was
ldquoCar makers will suddenly remember all the thing they forgot to give yourdquo This hinted that Indica would have
more features than any of the existing small cars Indica used the catch lines like ldquo More car per Carrdquo ldquoMore
dreams per carrdquo to suggest that Indica will be bigger in size to the existing small cars yet be in the small car
category It competes with the mid size cars on size and give them a run for their money with its cheaper price
tag
At the launch of the car TELCO claimed that the people would never have to suffer from a small car again and
that the n end of the year (1998) would be the end of the small cars
Launch Campaign
The launch campaign of Indica focussed on the many advantages that it offered over other cars in the same
segment It promised the customers more than the current offerings Its first advertisement carried the following
catch line ldquo50cc moped 100cc bike 800cc car Time you asked for morerdquo
38
It then concentrated its efforts on criticizing the negative aspects of Maruti 800 and highlighted how Indica has
removed those very defects and presented a very sophisticated and modern car to the Indian customer It even
pointed out that the shape of Maruti was very unconventional and that people would prefer the shape of Indica to
Maruti 800 The advertisement read ldquo Box shaped bubble shaped wedge shaped But then Gentlemen prefer
curvesrdquo
The launch campaign also focussed on the roomy interiors of Indica a feature not offered by Maruti at that point
of time Also the expertise of TATA in diesel engines and fuel efficiency of these were the highlight of the launch
campaign of Tata Indica
Post Launch Campaigns
While the Launch campaign focussed on the features of Indica the post launch advertisements focussed on the
superior after sales service and longer warranty periods offered by Indica
Telco was the first company to offer an 18-month warranty period on engine parts The most famous line used
during this campaign was ldquoWe could go on and on about service or give you the one word summary TATArdquo
While their main adversary was the Maruti 800 Telco felt that it could also tap the mid size segment using the
selling point of space given by Indica They carried a campaign which said ldquoForget small cars we even make big
cars feel smallrdquo
It then went on to highlight the fact that Indica was Euro II compliant even before it was legally binding upon car
manufacturers to do so It also highlighted the concrete wall safety test that Indica withstands and tried to
showcase the car as a safe and strong car
39
Chapter 6 COST REDUCTION TECHNIQUES
IN TATA MOTORSrsquoS INDICA
40
Chapter 6 Tata Indica - The Making Of The Small Car
with objective of minimizing costs
The research provides an understanding of the issues concerning the supply chain management system at
Telco in regard to its small car Indica It outlines how Telco built the supply chain for the car by leveraging its
existing competencies and how it transformed itself from an integrated truck manufacturer to an automobile
integrator and from a product-centric company to competence- centric company The case discusses various
components of the supply chain and emphasises how Telco orchestrated them with the objective of minimizing
costs
ldquoTelcorsquos 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 comerdquo
- Business India March 22 1999
In the early 1990s Telcorsquos Chairman Ratan Tata (Tata) was flirting with the idea of developing a small
car By mid-1994 a rudimentary design was in place In 1995 Telco announced that it planned to build a car
which would be priced close to the Maruti 800 shaped like the Zen and spacious as an Ambassador
Producing the new small car ndash Indica ndash represented a different kind of challenge for Telco Should Tata succeed he
would change the face of Telco As a truck-maker Telco was so integrated that it even made it own castings and
forgings As an automaker it would have to focus on the value chain that stretched between raw materials and after-sales
41
service as well as assembling the parts into the complete automobile
For its new venture Telco outsourced 80 of the components (1200 of its 1500-plus parts) from 200-odd vendors To
develop the Indica Telco had to combine the learnings from its predecessors with its own unique supply chain
management strategies to ensure a sustainable low-cost platform
By learning to build and manage a supply chain it would set the ground for leveraging the capabilities of the
automotive component-manufacturers who already operated in its target markets In other words Telco planned
to use its skills as an integrator--bringing together products and services from both upstream and downstream
operations and packaging them for the customer under a brand name in its new venture
Globally a car could be built in 48 months with an investment of US $ 3 billion (Rs 1275 billion) Indica was
built in 31 months on a budget of Rs 17 billion This seemed to have been possible by focussing on the supply
chain
Chapter 61 THE OUTSOURCING STRATEGY
For Telco outsourcing seemed to be one of the most difficult aspects of producing the Indica Unlike global
automobile majors Ford Motors or General Motors which had a global vendor-base that could be replicated on
a smaller scale in India Telco had to create a vendor-base from scratch Moreover it did not have the expertise
either to design a car or to build an engine for it
Against this background Telco had to take its primary lsquomake-or-buyrsquo decisions for the key inputs-design
engine and transmission Telco decided to shop globally for the best deals and use its own expertise to make
42
whatever modifications were needed
(Refer Table I for the components outsourced by Telco)
TABLE I
OUTSOURCING THE COMPONENTS
Components Supplier
5 door hatchback IDEA Italy
Engine Institut Francais du Petrol
France
Assembly Line Nissanrsquos Plant Australia
Presses Mercedes Benz
Pistons and Piston rings India Pistons
Electrical components and fuel injection
systems Lucas-TVS
Steering systems Rane TRW Steering Systems
Clutch facings and rear (drum) brake linings Sundaram Brake Linings (SBL)
Seating Systems Tata-Johnson Controls
Radiators Tata-Toyo
Rear view mirrors Tata-Ficosa
Front and rear bumper dash-board inside
trims Tata-Auto Plastics
Air conditioning kits Subros Ltd
Wind screens and windows Asahi Glass
Fuel lines Imperial Auto
Differential assemblies Sona Steering
43
Sheet metal items JBM Tools
Source Business Today March 22 1999 and December 7 1999
Telco turned to the Italian company IDEA for the product-design It bought the engine from the Institut
Francais du Petrol of France and applied its engineering skills to adapt the engine requirements The transmission
was developed in-house at its Engineering Research Centre (ERC) at Pune Of the Rs 25 billion it spent on
designing the Indica the major share went in buying design tools and training its engineers in new skills Telcorsquos
engineers traveled regularly to the sites of its technology suppliers to receive training before the actual delivery
of the machines
Telco also outsourced its assembly line from Nissanrsquos plant in Australia for just Rs 900 million Telco
transplanted it at its factory at Chikli near Pune which was newly set up for Indica A new assembly line of the
same proportions would have cost at least Rs 4 billion Again of the 3 presses for the Indica only 1 was new
acquired for Rs 900 million while the other 2 were bought second-hand from Mercedes-Benz and modified to
suit the Indica
Telcorsquos engineers and the ERC did the application engineering programming installation and commissioning to
save around 45 of the technology costs The tooling for the car too was supplied internally by Telcorsquos machine
tool division To manage the supply chain better Telco kept the number of suppliers for Indica to just 200 as
compared to about 1000 for trucks Most of the parts were supplied by Telcorsquos traditional suppliersmdash TVS Rane
Group and Tata Auto Component Systems (Taco) who were single source suppliers Pressed parts assemblies
and drive shafts were sourced from single vendors
44
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
Chapter 46 The Future-Indian Automobile
There is a sharp contrast in the buying behavior of Indian Consumer compared to their western counter parts yet
there is no doubt that Indian car market is going to increasingly resemble the latter In the West the industry is
likely to be dominated by three or four major players With a likely demand of 11 lakh cars by 2006 there will be
a few niche players like BMW Mercedes-Benz and Audi with luxury cars to offer Unless car manufacturers
have a large range of vehicle to offer they will be unable to subsidize their costlier models
The market will consolidate to few segments The carmaker has to make diverse models based on diverse and
flexible platforms Products like the stripped-down economy car the sports utility vehicle or the van should be
built on the same platform For the price-sensitive customers there can be a no-frills version a loaded version for
the middle customer and luxury car manufacturers can target the high-end customers
The fortunes of the autoobile industry will continue to hinge on the large price sensitive customers who will
graduate to the higher end of the market over a period of time
Until then the small car will continue to drive demand and most of the car-manufacturers are
gearing up for this eventuality
31
Chapter 5 Company Profile
ldquoTata Motorsrdquo
32
CHAPTER 5 Company ProfileTata Motors
Tata Motors previously known as Tata Engineering and Locomotive Co Ltd (TELCO) is one of the largest
companies in the Tata Group and one of Indias largest business houses Tata Motors is Indias leading
commercial vehicle manufacturer and the third largest passenger car manufacturer The company is the sixth
largest truck manufacturer in the world Tata Motors recently received the Balanced Scorecard Collaborative Hall
of Fame Award for having achieved a significant turnaround of its overall performance A comprehensive quality
improvement and cost cutting initiative in September 2000 has played an important role in the companys
turnaround from a loss of Rs 500 crores in the year ended March 2001 to a profit of Rs 28 crores in the first
quarter of 2002-2003
Tata Engineering and Locomotive Company (TELCO)
Chapter 51 History amp Evolution
Tata Engineering and Locomotive Company Ltd popularly known as Telco was incorporated in 1945 to
manufacture steam locomotives In 1954 the company diversified into automobile manufacturing through a
collaboration with Daimler-Benz for the manufacture of commercial vehicles By the time the collaboration ended
in 1969 Telco had not only become an independent producer of medium commercial vehicles (MCVs) with
negligible import contentbut had developed the capability of designing and developing such vehicles The
Company progressively widened its product range to cover heavy commercial vehicles (HCVs) and light
commercial vehicles (LCVs) implementing one expansion program after another
To sustain the unrelenting pace of its growth Telco added machining press and assembly
33
capacities set up its own forge and foundries and virtually created the countryrsquos automobile ancillary industry
The Company even developed facilities for designing and manufacturing state-of-the-art machine tools material
handling equipment dies and fixtures To accommodate the Companyrsquos growing activity base a large modern
complex was set up at Pune in western India and a new plant became operational at Lucknow in the north of the
country
To provide a business focus for the Companyrsquos main activity areas Telco has created twobusiness unitsrsquo -
Automobiles and Construction Equipment ndash both of which have notched up record-breaking results
Telco today has a domestic market share of 68 in the MCVHCV segment 64 in the LCV segment and 32
in the multi-utility segment Apart from commercial vehicles which range from 1 ton to 35 tons GVW Telcorsquos
automobile products also include passenger vehicles and an extraordinarily popular multi-utility vehicle All these
products have been developed inhouse by the Companyrsquos own RampD Center This Center is equipped with the
latest computeraided design hardware and software enabling the company to respond quickly to changing
customer needs both in India and abroad
Telco has been exporting its products since 1969 and currently exports about a tenth of its
output Export markets include the Middle East Africa and Southeast Asia as well as
developed countries in Europe like France UK and Spain It is intended that exports should account for 20 of
the automobiles sold by the Company
Telcorsquos second line of business Construction Equipment has also grown rapidly and the
Company currently commands a 61 share in the excavator market and 90 in the crawler cranes market in
India The hydraulically operated construction equipment made by the company is in collaboration with Hitachi
34
Construction Machinery Limited of Japan There are ambitious plans for widening the range of excavators made
by the company and for adding new lines of construction equipment A recent addition to the excavator range is
Backhoe Loader
Telco is one of Indias largest private sector companies With a turnover of Rs 6637 billion it is the countrys
leading commercial vehicle manufacturer and the worldrsquos sixth largest automobile company
The widely successful Tata Indica which is Euro 1 and 2 compliant is the countryrsquos first
indigenously designed developed and manufactured passenger car The company also
makes several other passengers vehicles including the Safari the Sumo the Sierra the Tata Estate and the
Tatamobile pick-up
The companyrsquos products have received wide acceptance not only in India but also in markets in the Middle East
Asia Africa and Europe
Chapter 52 Areas of business
The company manufactures medium heavy and light commercial vehicles multi-utility
vehicles and passenger cars It also makes general and special purpose machines for
automotive applications at its machine tool division These include NCCNC horizontal and inline machining
centers flexible manufacturing systems CNC cylindrical grinding machines and robots for welding cutting
painting and other applications
In 1999 the companyrsquos revenues from its four manufacturing plants at three locations in India were Rs 6637
billion ($15735 million) In 1998 they were Rs 7026 billion ($1893 million) (The average exchange rate in
1999 was Rs 4218 to one US dollar)
35
In the year ended 31 March 2000 the companyrsquos total exports were worth about Rs 50553 crore against about
Rs 60078 crore in the previous year
Locations
The companyrsquos manufacturing plants in India are at Jamshedpur in Bihar Pimpri and
Chinchwad near Pune in Maharashtra and Lucknow in Uttar Pradesh A fifth manufacturing facility is being set
up at Dharwad in Karnataka
Collaborations
The Company has technical tie-ups with
bull The Institute of Development in Automotive Engineering SPA Italy for assistance in
small car body design and styling
bull Nachi Fujikoshi Corporation Japan for robots for welding painting and other
automotive applications
bull Le Moteur Moderne France for the development of diesel and petrol engines for
passenger cars and
bull Robert Bausch GmbH Germany for application work on the engine management
system for 4 PL petrol engines
36
Chapter 53 Tata Motors ndashSuccessful Car Indica
TELCO launched Indica when the TATA group was in red Telco chairman Ratan Tata said that the 1400 cc car
Indica would drive the company out of the red
Tata while talking to reporters at the IETF 99 in a videoconference from Mumbai said that the overwhelming
response of over 125 lakh initial bookings for the Indica had come as a surprise It seems we touched the
national chord somewhere as people responded to the fact that this is the first Indian car said Tata Indica is not
the end of the road for Telco when it comes to passenger cars It is just the beginning as there are more to come
said Tata adding that the company was working on another mid-size car after Indica
Telco had to produce 60000 cars a year to break-even The group created two
organizations within Telco one dealing with commercial vehicles and the other with passenger cars The
company under took a major restructuring exercise whereby the passenger car and commercial vehicles divisions
would function as two separate business units Telco had a strategy to go for exports after addressing the initial
requirements of the domestic market
Awards and Recognition
In May 2000 Tata Engineering and Locomotive Company Ltd (Telco) won a national award for successful
indigenous technology used in the Indica car project The award titled National award for successful
commercialization of indigenous technology by an industrial concern for indigenous development and
commercialization of Tata Indica car was presented by the minister for human resource development science and
technology and ocean development
Dr Murli Manohar Joshi
37
In November 1999 Telco was awarded the Department of scientific and industrial research
national award for indigenous design of the Tata Indica It was the first company in India to implement stringent
emission norms well ahead of the mandate dates
Promotions
The Indica advertising made interest for the car go into overdrive The campaign revolved around the premise that
the Indica would not just meet peoples expectations it would exceed them Every advertisement has a story to
tell
Pre launch Campaign
The Indica campaign began in the right earnest in December 1998 It was advertised as the launch of a car that
will spell doom for the small cars It was directly aimed at Maruti 800 The ad line used in the first campaign was
ldquoCar makers will suddenly remember all the thing they forgot to give yourdquo This hinted that Indica would have
more features than any of the existing small cars Indica used the catch lines like ldquo More car per Carrdquo ldquoMore
dreams per carrdquo to suggest that Indica will be bigger in size to the existing small cars yet be in the small car
category It competes with the mid size cars on size and give them a run for their money with its cheaper price
tag
At the launch of the car TELCO claimed that the people would never have to suffer from a small car again and
that the n end of the year (1998) would be the end of the small cars
Launch Campaign
The launch campaign of Indica focussed on the many advantages that it offered over other cars in the same
segment It promised the customers more than the current offerings Its first advertisement carried the following
catch line ldquo50cc moped 100cc bike 800cc car Time you asked for morerdquo
38
It then concentrated its efforts on criticizing the negative aspects of Maruti 800 and highlighted how Indica has
removed those very defects and presented a very sophisticated and modern car to the Indian customer It even
pointed out that the shape of Maruti was very unconventional and that people would prefer the shape of Indica to
Maruti 800 The advertisement read ldquo Box shaped bubble shaped wedge shaped But then Gentlemen prefer
curvesrdquo
The launch campaign also focussed on the roomy interiors of Indica a feature not offered by Maruti at that point
of time Also the expertise of TATA in diesel engines and fuel efficiency of these were the highlight of the launch
campaign of Tata Indica
Post Launch Campaigns
While the Launch campaign focussed on the features of Indica the post launch advertisements focussed on the
superior after sales service and longer warranty periods offered by Indica
Telco was the first company to offer an 18-month warranty period on engine parts The most famous line used
during this campaign was ldquoWe could go on and on about service or give you the one word summary TATArdquo
While their main adversary was the Maruti 800 Telco felt that it could also tap the mid size segment using the
selling point of space given by Indica They carried a campaign which said ldquoForget small cars we even make big
cars feel smallrdquo
It then went on to highlight the fact that Indica was Euro II compliant even before it was legally binding upon car
manufacturers to do so It also highlighted the concrete wall safety test that Indica withstands and tried to
showcase the car as a safe and strong car
39
Chapter 6 COST REDUCTION TECHNIQUES
IN TATA MOTORSrsquoS INDICA
40
Chapter 6 Tata Indica - The Making Of The Small Car
with objective of minimizing costs
The research provides an understanding of the issues concerning the supply chain management system at
Telco in regard to its small car Indica It outlines how Telco built the supply chain for the car by leveraging its
existing competencies and how it transformed itself from an integrated truck manufacturer to an automobile
integrator and from a product-centric company to competence- centric company The case discusses various
components of the supply chain and emphasises how Telco orchestrated them with the objective of minimizing
costs
ldquoTelcorsquos 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 comerdquo
- Business India March 22 1999
In the early 1990s Telcorsquos Chairman Ratan Tata (Tata) was flirting with the idea of developing a small
car By mid-1994 a rudimentary design was in place In 1995 Telco announced that it planned to build a car
which would be priced close to the Maruti 800 shaped like the Zen and spacious as an Ambassador
Producing the new small car ndash Indica ndash represented a different kind of challenge for Telco Should Tata succeed he
would change the face of Telco As a truck-maker Telco was so integrated that it even made it own castings and
forgings As an automaker it would have to focus on the value chain that stretched between raw materials and after-sales
41
service as well as assembling the parts into the complete automobile
For its new venture Telco outsourced 80 of the components (1200 of its 1500-plus parts) from 200-odd vendors To
develop the Indica Telco had to combine the learnings from its predecessors with its own unique supply chain
management strategies to ensure a sustainable low-cost platform
By learning to build and manage a supply chain it would set the ground for leveraging the capabilities of the
automotive component-manufacturers who already operated in its target markets In other words Telco planned
to use its skills as an integrator--bringing together products and services from both upstream and downstream
operations and packaging them for the customer under a brand name in its new venture
Globally a car could be built in 48 months with an investment of US $ 3 billion (Rs 1275 billion) Indica was
built in 31 months on a budget of Rs 17 billion This seemed to have been possible by focussing on the supply
chain
Chapter 61 THE OUTSOURCING STRATEGY
For Telco outsourcing seemed to be one of the most difficult aspects of producing the Indica Unlike global
automobile majors Ford Motors or General Motors which had a global vendor-base that could be replicated on
a smaller scale in India Telco had to create a vendor-base from scratch Moreover it did not have the expertise
either to design a car or to build an engine for it
Against this background Telco had to take its primary lsquomake-or-buyrsquo decisions for the key inputs-design
engine and transmission Telco decided to shop globally for the best deals and use its own expertise to make
42
whatever modifications were needed
(Refer Table I for the components outsourced by Telco)
TABLE I
OUTSOURCING THE COMPONENTS
Components Supplier
5 door hatchback IDEA Italy
Engine Institut Francais du Petrol
France
Assembly Line Nissanrsquos Plant Australia
Presses Mercedes Benz
Pistons and Piston rings India Pistons
Electrical components and fuel injection
systems Lucas-TVS
Steering systems Rane TRW Steering Systems
Clutch facings and rear (drum) brake linings Sundaram Brake Linings (SBL)
Seating Systems Tata-Johnson Controls
Radiators Tata-Toyo
Rear view mirrors Tata-Ficosa
Front and rear bumper dash-board inside
trims Tata-Auto Plastics
Air conditioning kits Subros Ltd
Wind screens and windows Asahi Glass
Fuel lines Imperial Auto
Differential assemblies Sona Steering
43
Sheet metal items JBM Tools
Source Business Today March 22 1999 and December 7 1999
Telco turned to the Italian company IDEA for the product-design It bought the engine from the Institut
Francais du Petrol of France and applied its engineering skills to adapt the engine requirements The transmission
was developed in-house at its Engineering Research Centre (ERC) at Pune Of the Rs 25 billion it spent on
designing the Indica the major share went in buying design tools and training its engineers in new skills Telcorsquos
engineers traveled regularly to the sites of its technology suppliers to receive training before the actual delivery
of the machines
Telco also outsourced its assembly line from Nissanrsquos plant in Australia for just Rs 900 million Telco
transplanted it at its factory at Chikli near Pune which was newly set up for Indica A new assembly line of the
same proportions would have cost at least Rs 4 billion Again of the 3 presses for the Indica only 1 was new
acquired for Rs 900 million while the other 2 were bought second-hand from Mercedes-Benz and modified to
suit the Indica
Telcorsquos engineers and the ERC did the application engineering programming installation and commissioning to
save around 45 of the technology costs The tooling for the car too was supplied internally by Telcorsquos machine
tool division To manage the supply chain better Telco kept the number of suppliers for Indica to just 200 as
compared to about 1000 for trucks Most of the parts were supplied by Telcorsquos traditional suppliersmdash TVS Rane
Group and Tata Auto Component Systems (Taco) who were single source suppliers Pressed parts assemblies
and drive shafts were sourced from single vendors
44
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
Chapter 5 Company Profile
ldquoTata Motorsrdquo
32
CHAPTER 5 Company ProfileTata Motors
Tata Motors previously known as Tata Engineering and Locomotive Co Ltd (TELCO) is one of the largest
companies in the Tata Group and one of Indias largest business houses Tata Motors is Indias leading
commercial vehicle manufacturer and the third largest passenger car manufacturer The company is the sixth
largest truck manufacturer in the world Tata Motors recently received the Balanced Scorecard Collaborative Hall
of Fame Award for having achieved a significant turnaround of its overall performance A comprehensive quality
improvement and cost cutting initiative in September 2000 has played an important role in the companys
turnaround from a loss of Rs 500 crores in the year ended March 2001 to a profit of Rs 28 crores in the first
quarter of 2002-2003
Tata Engineering and Locomotive Company (TELCO)
Chapter 51 History amp Evolution
Tata Engineering and Locomotive Company Ltd popularly known as Telco was incorporated in 1945 to
manufacture steam locomotives In 1954 the company diversified into automobile manufacturing through a
collaboration with Daimler-Benz for the manufacture of commercial vehicles By the time the collaboration ended
in 1969 Telco had not only become an independent producer of medium commercial vehicles (MCVs) with
negligible import contentbut had developed the capability of designing and developing such vehicles The
Company progressively widened its product range to cover heavy commercial vehicles (HCVs) and light
commercial vehicles (LCVs) implementing one expansion program after another
To sustain the unrelenting pace of its growth Telco added machining press and assembly
33
capacities set up its own forge and foundries and virtually created the countryrsquos automobile ancillary industry
The Company even developed facilities for designing and manufacturing state-of-the-art machine tools material
handling equipment dies and fixtures To accommodate the Companyrsquos growing activity base a large modern
complex was set up at Pune in western India and a new plant became operational at Lucknow in the north of the
country
To provide a business focus for the Companyrsquos main activity areas Telco has created twobusiness unitsrsquo -
Automobiles and Construction Equipment ndash both of which have notched up record-breaking results
Telco today has a domestic market share of 68 in the MCVHCV segment 64 in the LCV segment and 32
in the multi-utility segment Apart from commercial vehicles which range from 1 ton to 35 tons GVW Telcorsquos
automobile products also include passenger vehicles and an extraordinarily popular multi-utility vehicle All these
products have been developed inhouse by the Companyrsquos own RampD Center This Center is equipped with the
latest computeraided design hardware and software enabling the company to respond quickly to changing
customer needs both in India and abroad
Telco has been exporting its products since 1969 and currently exports about a tenth of its
output Export markets include the Middle East Africa and Southeast Asia as well as
developed countries in Europe like France UK and Spain It is intended that exports should account for 20 of
the automobiles sold by the Company
Telcorsquos second line of business Construction Equipment has also grown rapidly and the
Company currently commands a 61 share in the excavator market and 90 in the crawler cranes market in
India The hydraulically operated construction equipment made by the company is in collaboration with Hitachi
34
Construction Machinery Limited of Japan There are ambitious plans for widening the range of excavators made
by the company and for adding new lines of construction equipment A recent addition to the excavator range is
Backhoe Loader
Telco is one of Indias largest private sector companies With a turnover of Rs 6637 billion it is the countrys
leading commercial vehicle manufacturer and the worldrsquos sixth largest automobile company
The widely successful Tata Indica which is Euro 1 and 2 compliant is the countryrsquos first
indigenously designed developed and manufactured passenger car The company also
makes several other passengers vehicles including the Safari the Sumo the Sierra the Tata Estate and the
Tatamobile pick-up
The companyrsquos products have received wide acceptance not only in India but also in markets in the Middle East
Asia Africa and Europe
Chapter 52 Areas of business
The company manufactures medium heavy and light commercial vehicles multi-utility
vehicles and passenger cars It also makes general and special purpose machines for
automotive applications at its machine tool division These include NCCNC horizontal and inline machining
centers flexible manufacturing systems CNC cylindrical grinding machines and robots for welding cutting
painting and other applications
In 1999 the companyrsquos revenues from its four manufacturing plants at three locations in India were Rs 6637
billion ($15735 million) In 1998 they were Rs 7026 billion ($1893 million) (The average exchange rate in
1999 was Rs 4218 to one US dollar)
35
In the year ended 31 March 2000 the companyrsquos total exports were worth about Rs 50553 crore against about
Rs 60078 crore in the previous year
Locations
The companyrsquos manufacturing plants in India are at Jamshedpur in Bihar Pimpri and
Chinchwad near Pune in Maharashtra and Lucknow in Uttar Pradesh A fifth manufacturing facility is being set
up at Dharwad in Karnataka
Collaborations
The Company has technical tie-ups with
bull The Institute of Development in Automotive Engineering SPA Italy for assistance in
small car body design and styling
bull Nachi Fujikoshi Corporation Japan for robots for welding painting and other
automotive applications
bull Le Moteur Moderne France for the development of diesel and petrol engines for
passenger cars and
bull Robert Bausch GmbH Germany for application work on the engine management
system for 4 PL petrol engines
36
Chapter 53 Tata Motors ndashSuccessful Car Indica
TELCO launched Indica when the TATA group was in red Telco chairman Ratan Tata said that the 1400 cc car
Indica would drive the company out of the red
Tata while talking to reporters at the IETF 99 in a videoconference from Mumbai said that the overwhelming
response of over 125 lakh initial bookings for the Indica had come as a surprise It seems we touched the
national chord somewhere as people responded to the fact that this is the first Indian car said Tata Indica is not
the end of the road for Telco when it comes to passenger cars It is just the beginning as there are more to come
said Tata adding that the company was working on another mid-size car after Indica
Telco had to produce 60000 cars a year to break-even The group created two
organizations within Telco one dealing with commercial vehicles and the other with passenger cars The
company under took a major restructuring exercise whereby the passenger car and commercial vehicles divisions
would function as two separate business units Telco had a strategy to go for exports after addressing the initial
requirements of the domestic market
Awards and Recognition
In May 2000 Tata Engineering and Locomotive Company Ltd (Telco) won a national award for successful
indigenous technology used in the Indica car project The award titled National award for successful
commercialization of indigenous technology by an industrial concern for indigenous development and
commercialization of Tata Indica car was presented by the minister for human resource development science and
technology and ocean development
Dr Murli Manohar Joshi
37
In November 1999 Telco was awarded the Department of scientific and industrial research
national award for indigenous design of the Tata Indica It was the first company in India to implement stringent
emission norms well ahead of the mandate dates
Promotions
The Indica advertising made interest for the car go into overdrive The campaign revolved around the premise that
the Indica would not just meet peoples expectations it would exceed them Every advertisement has a story to
tell
Pre launch Campaign
The Indica campaign began in the right earnest in December 1998 It was advertised as the launch of a car that
will spell doom for the small cars It was directly aimed at Maruti 800 The ad line used in the first campaign was
ldquoCar makers will suddenly remember all the thing they forgot to give yourdquo This hinted that Indica would have
more features than any of the existing small cars Indica used the catch lines like ldquo More car per Carrdquo ldquoMore
dreams per carrdquo to suggest that Indica will be bigger in size to the existing small cars yet be in the small car
category It competes with the mid size cars on size and give them a run for their money with its cheaper price
tag
At the launch of the car TELCO claimed that the people would never have to suffer from a small car again and
that the n end of the year (1998) would be the end of the small cars
Launch Campaign
The launch campaign of Indica focussed on the many advantages that it offered over other cars in the same
segment It promised the customers more than the current offerings Its first advertisement carried the following
catch line ldquo50cc moped 100cc bike 800cc car Time you asked for morerdquo
38
It then concentrated its efforts on criticizing the negative aspects of Maruti 800 and highlighted how Indica has
removed those very defects and presented a very sophisticated and modern car to the Indian customer It even
pointed out that the shape of Maruti was very unconventional and that people would prefer the shape of Indica to
Maruti 800 The advertisement read ldquo Box shaped bubble shaped wedge shaped But then Gentlemen prefer
curvesrdquo
The launch campaign also focussed on the roomy interiors of Indica a feature not offered by Maruti at that point
of time Also the expertise of TATA in diesel engines and fuel efficiency of these were the highlight of the launch
campaign of Tata Indica
Post Launch Campaigns
While the Launch campaign focussed on the features of Indica the post launch advertisements focussed on the
superior after sales service and longer warranty periods offered by Indica
Telco was the first company to offer an 18-month warranty period on engine parts The most famous line used
during this campaign was ldquoWe could go on and on about service or give you the one word summary TATArdquo
While their main adversary was the Maruti 800 Telco felt that it could also tap the mid size segment using the
selling point of space given by Indica They carried a campaign which said ldquoForget small cars we even make big
cars feel smallrdquo
It then went on to highlight the fact that Indica was Euro II compliant even before it was legally binding upon car
manufacturers to do so It also highlighted the concrete wall safety test that Indica withstands and tried to
showcase the car as a safe and strong car
39
Chapter 6 COST REDUCTION TECHNIQUES
IN TATA MOTORSrsquoS INDICA
40
Chapter 6 Tata Indica - The Making Of The Small Car
with objective of minimizing costs
The research provides an understanding of the issues concerning the supply chain management system at
Telco in regard to its small car Indica It outlines how Telco built the supply chain for the car by leveraging its
existing competencies and how it transformed itself from an integrated truck manufacturer to an automobile
integrator and from a product-centric company to competence- centric company The case discusses various
components of the supply chain and emphasises how Telco orchestrated them with the objective of minimizing
costs
ldquoTelcorsquos 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 comerdquo
- Business India March 22 1999
In the early 1990s Telcorsquos Chairman Ratan Tata (Tata) was flirting with the idea of developing a small
car By mid-1994 a rudimentary design was in place In 1995 Telco announced that it planned to build a car
which would be priced close to the Maruti 800 shaped like the Zen and spacious as an Ambassador
Producing the new small car ndash Indica ndash represented a different kind of challenge for Telco Should Tata succeed he
would change the face of Telco As a truck-maker Telco was so integrated that it even made it own castings and
forgings As an automaker it would have to focus on the value chain that stretched between raw materials and after-sales
41
service as well as assembling the parts into the complete automobile
For its new venture Telco outsourced 80 of the components (1200 of its 1500-plus parts) from 200-odd vendors To
develop the Indica Telco had to combine the learnings from its predecessors with its own unique supply chain
management strategies to ensure a sustainable low-cost platform
By learning to build and manage a supply chain it would set the ground for leveraging the capabilities of the
automotive component-manufacturers who already operated in its target markets In other words Telco planned
to use its skills as an integrator--bringing together products and services from both upstream and downstream
operations and packaging them for the customer under a brand name in its new venture
Globally a car could be built in 48 months with an investment of US $ 3 billion (Rs 1275 billion) Indica was
built in 31 months on a budget of Rs 17 billion This seemed to have been possible by focussing on the supply
chain
Chapter 61 THE OUTSOURCING STRATEGY
For Telco outsourcing seemed to be one of the most difficult aspects of producing the Indica Unlike global
automobile majors Ford Motors or General Motors which had a global vendor-base that could be replicated on
a smaller scale in India Telco had to create a vendor-base from scratch Moreover it did not have the expertise
either to design a car or to build an engine for it
Against this background Telco had to take its primary lsquomake-or-buyrsquo decisions for the key inputs-design
engine and transmission Telco decided to shop globally for the best deals and use its own expertise to make
42
whatever modifications were needed
(Refer Table I for the components outsourced by Telco)
TABLE I
OUTSOURCING THE COMPONENTS
Components Supplier
5 door hatchback IDEA Italy
Engine Institut Francais du Petrol
France
Assembly Line Nissanrsquos Plant Australia
Presses Mercedes Benz
Pistons and Piston rings India Pistons
Electrical components and fuel injection
systems Lucas-TVS
Steering systems Rane TRW Steering Systems
Clutch facings and rear (drum) brake linings Sundaram Brake Linings (SBL)
Seating Systems Tata-Johnson Controls
Radiators Tata-Toyo
Rear view mirrors Tata-Ficosa
Front and rear bumper dash-board inside
trims Tata-Auto Plastics
Air conditioning kits Subros Ltd
Wind screens and windows Asahi Glass
Fuel lines Imperial Auto
Differential assemblies Sona Steering
43
Sheet metal items JBM Tools
Source Business Today March 22 1999 and December 7 1999
Telco turned to the Italian company IDEA for the product-design It bought the engine from the Institut
Francais du Petrol of France and applied its engineering skills to adapt the engine requirements The transmission
was developed in-house at its Engineering Research Centre (ERC) at Pune Of the Rs 25 billion it spent on
designing the Indica the major share went in buying design tools and training its engineers in new skills Telcorsquos
engineers traveled regularly to the sites of its technology suppliers to receive training before the actual delivery
of the machines
Telco also outsourced its assembly line from Nissanrsquos plant in Australia for just Rs 900 million Telco
transplanted it at its factory at Chikli near Pune which was newly set up for Indica A new assembly line of the
same proportions would have cost at least Rs 4 billion Again of the 3 presses for the Indica only 1 was new
acquired for Rs 900 million while the other 2 were bought second-hand from Mercedes-Benz and modified to
suit the Indica
Telcorsquos engineers and the ERC did the application engineering programming installation and commissioning to
save around 45 of the technology costs The tooling for the car too was supplied internally by Telcorsquos machine
tool division To manage the supply chain better Telco kept the number of suppliers for Indica to just 200 as
compared to about 1000 for trucks Most of the parts were supplied by Telcorsquos traditional suppliersmdash TVS Rane
Group and Tata Auto Component Systems (Taco) who were single source suppliers Pressed parts assemblies
and drive shafts were sourced from single vendors
44
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
CHAPTER 5 Company ProfileTata Motors
Tata Motors previously known as Tata Engineering and Locomotive Co Ltd (TELCO) is one of the largest
companies in the Tata Group and one of Indias largest business houses Tata Motors is Indias leading
commercial vehicle manufacturer and the third largest passenger car manufacturer The company is the sixth
largest truck manufacturer in the world Tata Motors recently received the Balanced Scorecard Collaborative Hall
of Fame Award for having achieved a significant turnaround of its overall performance A comprehensive quality
improvement and cost cutting initiative in September 2000 has played an important role in the companys
turnaround from a loss of Rs 500 crores in the year ended March 2001 to a profit of Rs 28 crores in the first
quarter of 2002-2003
Tata Engineering and Locomotive Company (TELCO)
Chapter 51 History amp Evolution
Tata Engineering and Locomotive Company Ltd popularly known as Telco was incorporated in 1945 to
manufacture steam locomotives In 1954 the company diversified into automobile manufacturing through a
collaboration with Daimler-Benz for the manufacture of commercial vehicles By the time the collaboration ended
in 1969 Telco had not only become an independent producer of medium commercial vehicles (MCVs) with
negligible import contentbut had developed the capability of designing and developing such vehicles The
Company progressively widened its product range to cover heavy commercial vehicles (HCVs) and light
commercial vehicles (LCVs) implementing one expansion program after another
To sustain the unrelenting pace of its growth Telco added machining press and assembly
33
capacities set up its own forge and foundries and virtually created the countryrsquos automobile ancillary industry
The Company even developed facilities for designing and manufacturing state-of-the-art machine tools material
handling equipment dies and fixtures To accommodate the Companyrsquos growing activity base a large modern
complex was set up at Pune in western India and a new plant became operational at Lucknow in the north of the
country
To provide a business focus for the Companyrsquos main activity areas Telco has created twobusiness unitsrsquo -
Automobiles and Construction Equipment ndash both of which have notched up record-breaking results
Telco today has a domestic market share of 68 in the MCVHCV segment 64 in the LCV segment and 32
in the multi-utility segment Apart from commercial vehicles which range from 1 ton to 35 tons GVW Telcorsquos
automobile products also include passenger vehicles and an extraordinarily popular multi-utility vehicle All these
products have been developed inhouse by the Companyrsquos own RampD Center This Center is equipped with the
latest computeraided design hardware and software enabling the company to respond quickly to changing
customer needs both in India and abroad
Telco has been exporting its products since 1969 and currently exports about a tenth of its
output Export markets include the Middle East Africa and Southeast Asia as well as
developed countries in Europe like France UK and Spain It is intended that exports should account for 20 of
the automobiles sold by the Company
Telcorsquos second line of business Construction Equipment has also grown rapidly and the
Company currently commands a 61 share in the excavator market and 90 in the crawler cranes market in
India The hydraulically operated construction equipment made by the company is in collaboration with Hitachi
34
Construction Machinery Limited of Japan There are ambitious plans for widening the range of excavators made
by the company and for adding new lines of construction equipment A recent addition to the excavator range is
Backhoe Loader
Telco is one of Indias largest private sector companies With a turnover of Rs 6637 billion it is the countrys
leading commercial vehicle manufacturer and the worldrsquos sixth largest automobile company
The widely successful Tata Indica which is Euro 1 and 2 compliant is the countryrsquos first
indigenously designed developed and manufactured passenger car The company also
makes several other passengers vehicles including the Safari the Sumo the Sierra the Tata Estate and the
Tatamobile pick-up
The companyrsquos products have received wide acceptance not only in India but also in markets in the Middle East
Asia Africa and Europe
Chapter 52 Areas of business
The company manufactures medium heavy and light commercial vehicles multi-utility
vehicles and passenger cars It also makes general and special purpose machines for
automotive applications at its machine tool division These include NCCNC horizontal and inline machining
centers flexible manufacturing systems CNC cylindrical grinding machines and robots for welding cutting
painting and other applications
In 1999 the companyrsquos revenues from its four manufacturing plants at three locations in India were Rs 6637
billion ($15735 million) In 1998 they were Rs 7026 billion ($1893 million) (The average exchange rate in
1999 was Rs 4218 to one US dollar)
35
In the year ended 31 March 2000 the companyrsquos total exports were worth about Rs 50553 crore against about
Rs 60078 crore in the previous year
Locations
The companyrsquos manufacturing plants in India are at Jamshedpur in Bihar Pimpri and
Chinchwad near Pune in Maharashtra and Lucknow in Uttar Pradesh A fifth manufacturing facility is being set
up at Dharwad in Karnataka
Collaborations
The Company has technical tie-ups with
bull The Institute of Development in Automotive Engineering SPA Italy for assistance in
small car body design and styling
bull Nachi Fujikoshi Corporation Japan for robots for welding painting and other
automotive applications
bull Le Moteur Moderne France for the development of diesel and petrol engines for
passenger cars and
bull Robert Bausch GmbH Germany for application work on the engine management
system for 4 PL petrol engines
36
Chapter 53 Tata Motors ndashSuccessful Car Indica
TELCO launched Indica when the TATA group was in red Telco chairman Ratan Tata said that the 1400 cc car
Indica would drive the company out of the red
Tata while talking to reporters at the IETF 99 in a videoconference from Mumbai said that the overwhelming
response of over 125 lakh initial bookings for the Indica had come as a surprise It seems we touched the
national chord somewhere as people responded to the fact that this is the first Indian car said Tata Indica is not
the end of the road for Telco when it comes to passenger cars It is just the beginning as there are more to come
said Tata adding that the company was working on another mid-size car after Indica
Telco had to produce 60000 cars a year to break-even The group created two
organizations within Telco one dealing with commercial vehicles and the other with passenger cars The
company under took a major restructuring exercise whereby the passenger car and commercial vehicles divisions
would function as two separate business units Telco had a strategy to go for exports after addressing the initial
requirements of the domestic market
Awards and Recognition
In May 2000 Tata Engineering and Locomotive Company Ltd (Telco) won a national award for successful
indigenous technology used in the Indica car project The award titled National award for successful
commercialization of indigenous technology by an industrial concern for indigenous development and
commercialization of Tata Indica car was presented by the minister for human resource development science and
technology and ocean development
Dr Murli Manohar Joshi
37
In November 1999 Telco was awarded the Department of scientific and industrial research
national award for indigenous design of the Tata Indica It was the first company in India to implement stringent
emission norms well ahead of the mandate dates
Promotions
The Indica advertising made interest for the car go into overdrive The campaign revolved around the premise that
the Indica would not just meet peoples expectations it would exceed them Every advertisement has a story to
tell
Pre launch Campaign
The Indica campaign began in the right earnest in December 1998 It was advertised as the launch of a car that
will spell doom for the small cars It was directly aimed at Maruti 800 The ad line used in the first campaign was
ldquoCar makers will suddenly remember all the thing they forgot to give yourdquo This hinted that Indica would have
more features than any of the existing small cars Indica used the catch lines like ldquo More car per Carrdquo ldquoMore
dreams per carrdquo to suggest that Indica will be bigger in size to the existing small cars yet be in the small car
category It competes with the mid size cars on size and give them a run for their money with its cheaper price
tag
At the launch of the car TELCO claimed that the people would never have to suffer from a small car again and
that the n end of the year (1998) would be the end of the small cars
Launch Campaign
The launch campaign of Indica focussed on the many advantages that it offered over other cars in the same
segment It promised the customers more than the current offerings Its first advertisement carried the following
catch line ldquo50cc moped 100cc bike 800cc car Time you asked for morerdquo
38
It then concentrated its efforts on criticizing the negative aspects of Maruti 800 and highlighted how Indica has
removed those very defects and presented a very sophisticated and modern car to the Indian customer It even
pointed out that the shape of Maruti was very unconventional and that people would prefer the shape of Indica to
Maruti 800 The advertisement read ldquo Box shaped bubble shaped wedge shaped But then Gentlemen prefer
curvesrdquo
The launch campaign also focussed on the roomy interiors of Indica a feature not offered by Maruti at that point
of time Also the expertise of TATA in diesel engines and fuel efficiency of these were the highlight of the launch
campaign of Tata Indica
Post Launch Campaigns
While the Launch campaign focussed on the features of Indica the post launch advertisements focussed on the
superior after sales service and longer warranty periods offered by Indica
Telco was the first company to offer an 18-month warranty period on engine parts The most famous line used
during this campaign was ldquoWe could go on and on about service or give you the one word summary TATArdquo
While their main adversary was the Maruti 800 Telco felt that it could also tap the mid size segment using the
selling point of space given by Indica They carried a campaign which said ldquoForget small cars we even make big
cars feel smallrdquo
It then went on to highlight the fact that Indica was Euro II compliant even before it was legally binding upon car
manufacturers to do so It also highlighted the concrete wall safety test that Indica withstands and tried to
showcase the car as a safe and strong car
39
Chapter 6 COST REDUCTION TECHNIQUES
IN TATA MOTORSrsquoS INDICA
40
Chapter 6 Tata Indica - The Making Of The Small Car
with objective of minimizing costs
The research provides an understanding of the issues concerning the supply chain management system at
Telco in regard to its small car Indica It outlines how Telco built the supply chain for the car by leveraging its
existing competencies and how it transformed itself from an integrated truck manufacturer to an automobile
integrator and from a product-centric company to competence- centric company The case discusses various
components of the supply chain and emphasises how Telco orchestrated them with the objective of minimizing
costs
ldquoTelcorsquos 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 comerdquo
- Business India March 22 1999
In the early 1990s Telcorsquos Chairman Ratan Tata (Tata) was flirting with the idea of developing a small
car By mid-1994 a rudimentary design was in place In 1995 Telco announced that it planned to build a car
which would be priced close to the Maruti 800 shaped like the Zen and spacious as an Ambassador
Producing the new small car ndash Indica ndash represented a different kind of challenge for Telco Should Tata succeed he
would change the face of Telco As a truck-maker Telco was so integrated that it even made it own castings and
forgings As an automaker it would have to focus on the value chain that stretched between raw materials and after-sales
41
service as well as assembling the parts into the complete automobile
For its new venture Telco outsourced 80 of the components (1200 of its 1500-plus parts) from 200-odd vendors To
develop the Indica Telco had to combine the learnings from its predecessors with its own unique supply chain
management strategies to ensure a sustainable low-cost platform
By learning to build and manage a supply chain it would set the ground for leveraging the capabilities of the
automotive component-manufacturers who already operated in its target markets In other words Telco planned
to use its skills as an integrator--bringing together products and services from both upstream and downstream
operations and packaging them for the customer under a brand name in its new venture
Globally a car could be built in 48 months with an investment of US $ 3 billion (Rs 1275 billion) Indica was
built in 31 months on a budget of Rs 17 billion This seemed to have been possible by focussing on the supply
chain
Chapter 61 THE OUTSOURCING STRATEGY
For Telco outsourcing seemed to be one of the most difficult aspects of producing the Indica Unlike global
automobile majors Ford Motors or General Motors which had a global vendor-base that could be replicated on
a smaller scale in India Telco had to create a vendor-base from scratch Moreover it did not have the expertise
either to design a car or to build an engine for it
Against this background Telco had to take its primary lsquomake-or-buyrsquo decisions for the key inputs-design
engine and transmission Telco decided to shop globally for the best deals and use its own expertise to make
42
whatever modifications were needed
(Refer Table I for the components outsourced by Telco)
TABLE I
OUTSOURCING THE COMPONENTS
Components Supplier
5 door hatchback IDEA Italy
Engine Institut Francais du Petrol
France
Assembly Line Nissanrsquos Plant Australia
Presses Mercedes Benz
Pistons and Piston rings India Pistons
Electrical components and fuel injection
systems Lucas-TVS
Steering systems Rane TRW Steering Systems
Clutch facings and rear (drum) brake linings Sundaram Brake Linings (SBL)
Seating Systems Tata-Johnson Controls
Radiators Tata-Toyo
Rear view mirrors Tata-Ficosa
Front and rear bumper dash-board inside
trims Tata-Auto Plastics
Air conditioning kits Subros Ltd
Wind screens and windows Asahi Glass
Fuel lines Imperial Auto
Differential assemblies Sona Steering
43
Sheet metal items JBM Tools
Source Business Today March 22 1999 and December 7 1999
Telco turned to the Italian company IDEA for the product-design It bought the engine from the Institut
Francais du Petrol of France and applied its engineering skills to adapt the engine requirements The transmission
was developed in-house at its Engineering Research Centre (ERC) at Pune Of the Rs 25 billion it spent on
designing the Indica the major share went in buying design tools and training its engineers in new skills Telcorsquos
engineers traveled regularly to the sites of its technology suppliers to receive training before the actual delivery
of the machines
Telco also outsourced its assembly line from Nissanrsquos plant in Australia for just Rs 900 million Telco
transplanted it at its factory at Chikli near Pune which was newly set up for Indica A new assembly line of the
same proportions would have cost at least Rs 4 billion Again of the 3 presses for the Indica only 1 was new
acquired for Rs 900 million while the other 2 were bought second-hand from Mercedes-Benz and modified to
suit the Indica
Telcorsquos engineers and the ERC did the application engineering programming installation and commissioning to
save around 45 of the technology costs The tooling for the car too was supplied internally by Telcorsquos machine
tool division To manage the supply chain better Telco kept the number of suppliers for Indica to just 200 as
compared to about 1000 for trucks Most of the parts were supplied by Telcorsquos traditional suppliersmdash TVS Rane
Group and Tata Auto Component Systems (Taco) who were single source suppliers Pressed parts assemblies
and drive shafts were sourced from single vendors
44
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
capacities set up its own forge and foundries and virtually created the countryrsquos automobile ancillary industry
The Company even developed facilities for designing and manufacturing state-of-the-art machine tools material
handling equipment dies and fixtures To accommodate the Companyrsquos growing activity base a large modern
complex was set up at Pune in western India and a new plant became operational at Lucknow in the north of the
country
To provide a business focus for the Companyrsquos main activity areas Telco has created twobusiness unitsrsquo -
Automobiles and Construction Equipment ndash both of which have notched up record-breaking results
Telco today has a domestic market share of 68 in the MCVHCV segment 64 in the LCV segment and 32
in the multi-utility segment Apart from commercial vehicles which range from 1 ton to 35 tons GVW Telcorsquos
automobile products also include passenger vehicles and an extraordinarily popular multi-utility vehicle All these
products have been developed inhouse by the Companyrsquos own RampD Center This Center is equipped with the
latest computeraided design hardware and software enabling the company to respond quickly to changing
customer needs both in India and abroad
Telco has been exporting its products since 1969 and currently exports about a tenth of its
output Export markets include the Middle East Africa and Southeast Asia as well as
developed countries in Europe like France UK and Spain It is intended that exports should account for 20 of
the automobiles sold by the Company
Telcorsquos second line of business Construction Equipment has also grown rapidly and the
Company currently commands a 61 share in the excavator market and 90 in the crawler cranes market in
India The hydraulically operated construction equipment made by the company is in collaboration with Hitachi
34
Construction Machinery Limited of Japan There are ambitious plans for widening the range of excavators made
by the company and for adding new lines of construction equipment A recent addition to the excavator range is
Backhoe Loader
Telco is one of Indias largest private sector companies With a turnover of Rs 6637 billion it is the countrys
leading commercial vehicle manufacturer and the worldrsquos sixth largest automobile company
The widely successful Tata Indica which is Euro 1 and 2 compliant is the countryrsquos first
indigenously designed developed and manufactured passenger car The company also
makes several other passengers vehicles including the Safari the Sumo the Sierra the Tata Estate and the
Tatamobile pick-up
The companyrsquos products have received wide acceptance not only in India but also in markets in the Middle East
Asia Africa and Europe
Chapter 52 Areas of business
The company manufactures medium heavy and light commercial vehicles multi-utility
vehicles and passenger cars It also makes general and special purpose machines for
automotive applications at its machine tool division These include NCCNC horizontal and inline machining
centers flexible manufacturing systems CNC cylindrical grinding machines and robots for welding cutting
painting and other applications
In 1999 the companyrsquos revenues from its four manufacturing plants at three locations in India were Rs 6637
billion ($15735 million) In 1998 they were Rs 7026 billion ($1893 million) (The average exchange rate in
1999 was Rs 4218 to one US dollar)
35
In the year ended 31 March 2000 the companyrsquos total exports were worth about Rs 50553 crore against about
Rs 60078 crore in the previous year
Locations
The companyrsquos manufacturing plants in India are at Jamshedpur in Bihar Pimpri and
Chinchwad near Pune in Maharashtra and Lucknow in Uttar Pradesh A fifth manufacturing facility is being set
up at Dharwad in Karnataka
Collaborations
The Company has technical tie-ups with
bull The Institute of Development in Automotive Engineering SPA Italy for assistance in
small car body design and styling
bull Nachi Fujikoshi Corporation Japan for robots for welding painting and other
automotive applications
bull Le Moteur Moderne France for the development of diesel and petrol engines for
passenger cars and
bull Robert Bausch GmbH Germany for application work on the engine management
system for 4 PL petrol engines
36
Chapter 53 Tata Motors ndashSuccessful Car Indica
TELCO launched Indica when the TATA group was in red Telco chairman Ratan Tata said that the 1400 cc car
Indica would drive the company out of the red
Tata while talking to reporters at the IETF 99 in a videoconference from Mumbai said that the overwhelming
response of over 125 lakh initial bookings for the Indica had come as a surprise It seems we touched the
national chord somewhere as people responded to the fact that this is the first Indian car said Tata Indica is not
the end of the road for Telco when it comes to passenger cars It is just the beginning as there are more to come
said Tata adding that the company was working on another mid-size car after Indica
Telco had to produce 60000 cars a year to break-even The group created two
organizations within Telco one dealing with commercial vehicles and the other with passenger cars The
company under took a major restructuring exercise whereby the passenger car and commercial vehicles divisions
would function as two separate business units Telco had a strategy to go for exports after addressing the initial
requirements of the domestic market
Awards and Recognition
In May 2000 Tata Engineering and Locomotive Company Ltd (Telco) won a national award for successful
indigenous technology used in the Indica car project The award titled National award for successful
commercialization of indigenous technology by an industrial concern for indigenous development and
commercialization of Tata Indica car was presented by the minister for human resource development science and
technology and ocean development
Dr Murli Manohar Joshi
37
In November 1999 Telco was awarded the Department of scientific and industrial research
national award for indigenous design of the Tata Indica It was the first company in India to implement stringent
emission norms well ahead of the mandate dates
Promotions
The Indica advertising made interest for the car go into overdrive The campaign revolved around the premise that
the Indica would not just meet peoples expectations it would exceed them Every advertisement has a story to
tell
Pre launch Campaign
The Indica campaign began in the right earnest in December 1998 It was advertised as the launch of a car that
will spell doom for the small cars It was directly aimed at Maruti 800 The ad line used in the first campaign was
ldquoCar makers will suddenly remember all the thing they forgot to give yourdquo This hinted that Indica would have
more features than any of the existing small cars Indica used the catch lines like ldquo More car per Carrdquo ldquoMore
dreams per carrdquo to suggest that Indica will be bigger in size to the existing small cars yet be in the small car
category It competes with the mid size cars on size and give them a run for their money with its cheaper price
tag
At the launch of the car TELCO claimed that the people would never have to suffer from a small car again and
that the n end of the year (1998) would be the end of the small cars
Launch Campaign
The launch campaign of Indica focussed on the many advantages that it offered over other cars in the same
segment It promised the customers more than the current offerings Its first advertisement carried the following
catch line ldquo50cc moped 100cc bike 800cc car Time you asked for morerdquo
38
It then concentrated its efforts on criticizing the negative aspects of Maruti 800 and highlighted how Indica has
removed those very defects and presented a very sophisticated and modern car to the Indian customer It even
pointed out that the shape of Maruti was very unconventional and that people would prefer the shape of Indica to
Maruti 800 The advertisement read ldquo Box shaped bubble shaped wedge shaped But then Gentlemen prefer
curvesrdquo
The launch campaign also focussed on the roomy interiors of Indica a feature not offered by Maruti at that point
of time Also the expertise of TATA in diesel engines and fuel efficiency of these were the highlight of the launch
campaign of Tata Indica
Post Launch Campaigns
While the Launch campaign focussed on the features of Indica the post launch advertisements focussed on the
superior after sales service and longer warranty periods offered by Indica
Telco was the first company to offer an 18-month warranty period on engine parts The most famous line used
during this campaign was ldquoWe could go on and on about service or give you the one word summary TATArdquo
While their main adversary was the Maruti 800 Telco felt that it could also tap the mid size segment using the
selling point of space given by Indica They carried a campaign which said ldquoForget small cars we even make big
cars feel smallrdquo
It then went on to highlight the fact that Indica was Euro II compliant even before it was legally binding upon car
manufacturers to do so It also highlighted the concrete wall safety test that Indica withstands and tried to
showcase the car as a safe and strong car
39
Chapter 6 COST REDUCTION TECHNIQUES
IN TATA MOTORSrsquoS INDICA
40
Chapter 6 Tata Indica - The Making Of The Small Car
with objective of minimizing costs
The research provides an understanding of the issues concerning the supply chain management system at
Telco in regard to its small car Indica It outlines how Telco built the supply chain for the car by leveraging its
existing competencies and how it transformed itself from an integrated truck manufacturer to an automobile
integrator and from a product-centric company to competence- centric company The case discusses various
components of the supply chain and emphasises how Telco orchestrated them with the objective of minimizing
costs
ldquoTelcorsquos 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 comerdquo
- Business India March 22 1999
In the early 1990s Telcorsquos Chairman Ratan Tata (Tata) was flirting with the idea of developing a small
car By mid-1994 a rudimentary design was in place In 1995 Telco announced that it planned to build a car
which would be priced close to the Maruti 800 shaped like the Zen and spacious as an Ambassador
Producing the new small car ndash Indica ndash represented a different kind of challenge for Telco Should Tata succeed he
would change the face of Telco As a truck-maker Telco was so integrated that it even made it own castings and
forgings As an automaker it would have to focus on the value chain that stretched between raw materials and after-sales
41
service as well as assembling the parts into the complete automobile
For its new venture Telco outsourced 80 of the components (1200 of its 1500-plus parts) from 200-odd vendors To
develop the Indica Telco had to combine the learnings from its predecessors with its own unique supply chain
management strategies to ensure a sustainable low-cost platform
By learning to build and manage a supply chain it would set the ground for leveraging the capabilities of the
automotive component-manufacturers who already operated in its target markets In other words Telco planned
to use its skills as an integrator--bringing together products and services from both upstream and downstream
operations and packaging them for the customer under a brand name in its new venture
Globally a car could be built in 48 months with an investment of US $ 3 billion (Rs 1275 billion) Indica was
built in 31 months on a budget of Rs 17 billion This seemed to have been possible by focussing on the supply
chain
Chapter 61 THE OUTSOURCING STRATEGY
For Telco outsourcing seemed to be one of the most difficult aspects of producing the Indica Unlike global
automobile majors Ford Motors or General Motors which had a global vendor-base that could be replicated on
a smaller scale in India Telco had to create a vendor-base from scratch Moreover it did not have the expertise
either to design a car or to build an engine for it
Against this background Telco had to take its primary lsquomake-or-buyrsquo decisions for the key inputs-design
engine and transmission Telco decided to shop globally for the best deals and use its own expertise to make
42
whatever modifications were needed
(Refer Table I for the components outsourced by Telco)
TABLE I
OUTSOURCING THE COMPONENTS
Components Supplier
5 door hatchback IDEA Italy
Engine Institut Francais du Petrol
France
Assembly Line Nissanrsquos Plant Australia
Presses Mercedes Benz
Pistons and Piston rings India Pistons
Electrical components and fuel injection
systems Lucas-TVS
Steering systems Rane TRW Steering Systems
Clutch facings and rear (drum) brake linings Sundaram Brake Linings (SBL)
Seating Systems Tata-Johnson Controls
Radiators Tata-Toyo
Rear view mirrors Tata-Ficosa
Front and rear bumper dash-board inside
trims Tata-Auto Plastics
Air conditioning kits Subros Ltd
Wind screens and windows Asahi Glass
Fuel lines Imperial Auto
Differential assemblies Sona Steering
43
Sheet metal items JBM Tools
Source Business Today March 22 1999 and December 7 1999
Telco turned to the Italian company IDEA for the product-design It bought the engine from the Institut
Francais du Petrol of France and applied its engineering skills to adapt the engine requirements The transmission
was developed in-house at its Engineering Research Centre (ERC) at Pune Of the Rs 25 billion it spent on
designing the Indica the major share went in buying design tools and training its engineers in new skills Telcorsquos
engineers traveled regularly to the sites of its technology suppliers to receive training before the actual delivery
of the machines
Telco also outsourced its assembly line from Nissanrsquos plant in Australia for just Rs 900 million Telco
transplanted it at its factory at Chikli near Pune which was newly set up for Indica A new assembly line of the
same proportions would have cost at least Rs 4 billion Again of the 3 presses for the Indica only 1 was new
acquired for Rs 900 million while the other 2 were bought second-hand from Mercedes-Benz and modified to
suit the Indica
Telcorsquos engineers and the ERC did the application engineering programming installation and commissioning to
save around 45 of the technology costs The tooling for the car too was supplied internally by Telcorsquos machine
tool division To manage the supply chain better Telco kept the number of suppliers for Indica to just 200 as
compared to about 1000 for trucks Most of the parts were supplied by Telcorsquos traditional suppliersmdash TVS Rane
Group and Tata Auto Component Systems (Taco) who were single source suppliers Pressed parts assemblies
and drive shafts were sourced from single vendors
44
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
Construction Machinery Limited of Japan There are ambitious plans for widening the range of excavators made
by the company and for adding new lines of construction equipment A recent addition to the excavator range is
Backhoe Loader
Telco is one of Indias largest private sector companies With a turnover of Rs 6637 billion it is the countrys
leading commercial vehicle manufacturer and the worldrsquos sixth largest automobile company
The widely successful Tata Indica which is Euro 1 and 2 compliant is the countryrsquos first
indigenously designed developed and manufactured passenger car The company also
makes several other passengers vehicles including the Safari the Sumo the Sierra the Tata Estate and the
Tatamobile pick-up
The companyrsquos products have received wide acceptance not only in India but also in markets in the Middle East
Asia Africa and Europe
Chapter 52 Areas of business
The company manufactures medium heavy and light commercial vehicles multi-utility
vehicles and passenger cars It also makes general and special purpose machines for
automotive applications at its machine tool division These include NCCNC horizontal and inline machining
centers flexible manufacturing systems CNC cylindrical grinding machines and robots for welding cutting
painting and other applications
In 1999 the companyrsquos revenues from its four manufacturing plants at three locations in India were Rs 6637
billion ($15735 million) In 1998 they were Rs 7026 billion ($1893 million) (The average exchange rate in
1999 was Rs 4218 to one US dollar)
35
In the year ended 31 March 2000 the companyrsquos total exports were worth about Rs 50553 crore against about
Rs 60078 crore in the previous year
Locations
The companyrsquos manufacturing plants in India are at Jamshedpur in Bihar Pimpri and
Chinchwad near Pune in Maharashtra and Lucknow in Uttar Pradesh A fifth manufacturing facility is being set
up at Dharwad in Karnataka
Collaborations
The Company has technical tie-ups with
bull The Institute of Development in Automotive Engineering SPA Italy for assistance in
small car body design and styling
bull Nachi Fujikoshi Corporation Japan for robots for welding painting and other
automotive applications
bull Le Moteur Moderne France for the development of diesel and petrol engines for
passenger cars and
bull Robert Bausch GmbH Germany for application work on the engine management
system for 4 PL petrol engines
36
Chapter 53 Tata Motors ndashSuccessful Car Indica
TELCO launched Indica when the TATA group was in red Telco chairman Ratan Tata said that the 1400 cc car
Indica would drive the company out of the red
Tata while talking to reporters at the IETF 99 in a videoconference from Mumbai said that the overwhelming
response of over 125 lakh initial bookings for the Indica had come as a surprise It seems we touched the
national chord somewhere as people responded to the fact that this is the first Indian car said Tata Indica is not
the end of the road for Telco when it comes to passenger cars It is just the beginning as there are more to come
said Tata adding that the company was working on another mid-size car after Indica
Telco had to produce 60000 cars a year to break-even The group created two
organizations within Telco one dealing with commercial vehicles and the other with passenger cars The
company under took a major restructuring exercise whereby the passenger car and commercial vehicles divisions
would function as two separate business units Telco had a strategy to go for exports after addressing the initial
requirements of the domestic market
Awards and Recognition
In May 2000 Tata Engineering and Locomotive Company Ltd (Telco) won a national award for successful
indigenous technology used in the Indica car project The award titled National award for successful
commercialization of indigenous technology by an industrial concern for indigenous development and
commercialization of Tata Indica car was presented by the minister for human resource development science and
technology and ocean development
Dr Murli Manohar Joshi
37
In November 1999 Telco was awarded the Department of scientific and industrial research
national award for indigenous design of the Tata Indica It was the first company in India to implement stringent
emission norms well ahead of the mandate dates
Promotions
The Indica advertising made interest for the car go into overdrive The campaign revolved around the premise that
the Indica would not just meet peoples expectations it would exceed them Every advertisement has a story to
tell
Pre launch Campaign
The Indica campaign began in the right earnest in December 1998 It was advertised as the launch of a car that
will spell doom for the small cars It was directly aimed at Maruti 800 The ad line used in the first campaign was
ldquoCar makers will suddenly remember all the thing they forgot to give yourdquo This hinted that Indica would have
more features than any of the existing small cars Indica used the catch lines like ldquo More car per Carrdquo ldquoMore
dreams per carrdquo to suggest that Indica will be bigger in size to the existing small cars yet be in the small car
category It competes with the mid size cars on size and give them a run for their money with its cheaper price
tag
At the launch of the car TELCO claimed that the people would never have to suffer from a small car again and
that the n end of the year (1998) would be the end of the small cars
Launch Campaign
The launch campaign of Indica focussed on the many advantages that it offered over other cars in the same
segment It promised the customers more than the current offerings Its first advertisement carried the following
catch line ldquo50cc moped 100cc bike 800cc car Time you asked for morerdquo
38
It then concentrated its efforts on criticizing the negative aspects of Maruti 800 and highlighted how Indica has
removed those very defects and presented a very sophisticated and modern car to the Indian customer It even
pointed out that the shape of Maruti was very unconventional and that people would prefer the shape of Indica to
Maruti 800 The advertisement read ldquo Box shaped bubble shaped wedge shaped But then Gentlemen prefer
curvesrdquo
The launch campaign also focussed on the roomy interiors of Indica a feature not offered by Maruti at that point
of time Also the expertise of TATA in diesel engines and fuel efficiency of these were the highlight of the launch
campaign of Tata Indica
Post Launch Campaigns
While the Launch campaign focussed on the features of Indica the post launch advertisements focussed on the
superior after sales service and longer warranty periods offered by Indica
Telco was the first company to offer an 18-month warranty period on engine parts The most famous line used
during this campaign was ldquoWe could go on and on about service or give you the one word summary TATArdquo
While their main adversary was the Maruti 800 Telco felt that it could also tap the mid size segment using the
selling point of space given by Indica They carried a campaign which said ldquoForget small cars we even make big
cars feel smallrdquo
It then went on to highlight the fact that Indica was Euro II compliant even before it was legally binding upon car
manufacturers to do so It also highlighted the concrete wall safety test that Indica withstands and tried to
showcase the car as a safe and strong car
39
Chapter 6 COST REDUCTION TECHNIQUES
IN TATA MOTORSrsquoS INDICA
40
Chapter 6 Tata Indica - The Making Of The Small Car
with objective of minimizing costs
The research provides an understanding of the issues concerning the supply chain management system at
Telco in regard to its small car Indica It outlines how Telco built the supply chain for the car by leveraging its
existing competencies and how it transformed itself from an integrated truck manufacturer to an automobile
integrator and from a product-centric company to competence- centric company The case discusses various
components of the supply chain and emphasises how Telco orchestrated them with the objective of minimizing
costs
ldquoTelcorsquos 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 comerdquo
- Business India March 22 1999
In the early 1990s Telcorsquos Chairman Ratan Tata (Tata) was flirting with the idea of developing a small
car By mid-1994 a rudimentary design was in place In 1995 Telco announced that it planned to build a car
which would be priced close to the Maruti 800 shaped like the Zen and spacious as an Ambassador
Producing the new small car ndash Indica ndash represented a different kind of challenge for Telco Should Tata succeed he
would change the face of Telco As a truck-maker Telco was so integrated that it even made it own castings and
forgings As an automaker it would have to focus on the value chain that stretched between raw materials and after-sales
41
service as well as assembling the parts into the complete automobile
For its new venture Telco outsourced 80 of the components (1200 of its 1500-plus parts) from 200-odd vendors To
develop the Indica Telco had to combine the learnings from its predecessors with its own unique supply chain
management strategies to ensure a sustainable low-cost platform
By learning to build and manage a supply chain it would set the ground for leveraging the capabilities of the
automotive component-manufacturers who already operated in its target markets In other words Telco planned
to use its skills as an integrator--bringing together products and services from both upstream and downstream
operations and packaging them for the customer under a brand name in its new venture
Globally a car could be built in 48 months with an investment of US $ 3 billion (Rs 1275 billion) Indica was
built in 31 months on a budget of Rs 17 billion This seemed to have been possible by focussing on the supply
chain
Chapter 61 THE OUTSOURCING STRATEGY
For Telco outsourcing seemed to be one of the most difficult aspects of producing the Indica Unlike global
automobile majors Ford Motors or General Motors which had a global vendor-base that could be replicated on
a smaller scale in India Telco had to create a vendor-base from scratch Moreover it did not have the expertise
either to design a car or to build an engine for it
Against this background Telco had to take its primary lsquomake-or-buyrsquo decisions for the key inputs-design
engine and transmission Telco decided to shop globally for the best deals and use its own expertise to make
42
whatever modifications were needed
(Refer Table I for the components outsourced by Telco)
TABLE I
OUTSOURCING THE COMPONENTS
Components Supplier
5 door hatchback IDEA Italy
Engine Institut Francais du Petrol
France
Assembly Line Nissanrsquos Plant Australia
Presses Mercedes Benz
Pistons and Piston rings India Pistons
Electrical components and fuel injection
systems Lucas-TVS
Steering systems Rane TRW Steering Systems
Clutch facings and rear (drum) brake linings Sundaram Brake Linings (SBL)
Seating Systems Tata-Johnson Controls
Radiators Tata-Toyo
Rear view mirrors Tata-Ficosa
Front and rear bumper dash-board inside
trims Tata-Auto Plastics
Air conditioning kits Subros Ltd
Wind screens and windows Asahi Glass
Fuel lines Imperial Auto
Differential assemblies Sona Steering
43
Sheet metal items JBM Tools
Source Business Today March 22 1999 and December 7 1999
Telco turned to the Italian company IDEA for the product-design It bought the engine from the Institut
Francais du Petrol of France and applied its engineering skills to adapt the engine requirements The transmission
was developed in-house at its Engineering Research Centre (ERC) at Pune Of the Rs 25 billion it spent on
designing the Indica the major share went in buying design tools and training its engineers in new skills Telcorsquos
engineers traveled regularly to the sites of its technology suppliers to receive training before the actual delivery
of the machines
Telco also outsourced its assembly line from Nissanrsquos plant in Australia for just Rs 900 million Telco
transplanted it at its factory at Chikli near Pune which was newly set up for Indica A new assembly line of the
same proportions would have cost at least Rs 4 billion Again of the 3 presses for the Indica only 1 was new
acquired for Rs 900 million while the other 2 were bought second-hand from Mercedes-Benz and modified to
suit the Indica
Telcorsquos engineers and the ERC did the application engineering programming installation and commissioning to
save around 45 of the technology costs The tooling for the car too was supplied internally by Telcorsquos machine
tool division To manage the supply chain better Telco kept the number of suppliers for Indica to just 200 as
compared to about 1000 for trucks Most of the parts were supplied by Telcorsquos traditional suppliersmdash TVS Rane
Group and Tata Auto Component Systems (Taco) who were single source suppliers Pressed parts assemblies
and drive shafts were sourced from single vendors
44
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
In the year ended 31 March 2000 the companyrsquos total exports were worth about Rs 50553 crore against about
Rs 60078 crore in the previous year
Locations
The companyrsquos manufacturing plants in India are at Jamshedpur in Bihar Pimpri and
Chinchwad near Pune in Maharashtra and Lucknow in Uttar Pradesh A fifth manufacturing facility is being set
up at Dharwad in Karnataka
Collaborations
The Company has technical tie-ups with
bull The Institute of Development in Automotive Engineering SPA Italy for assistance in
small car body design and styling
bull Nachi Fujikoshi Corporation Japan for robots for welding painting and other
automotive applications
bull Le Moteur Moderne France for the development of diesel and petrol engines for
passenger cars and
bull Robert Bausch GmbH Germany for application work on the engine management
system for 4 PL petrol engines
36
Chapter 53 Tata Motors ndashSuccessful Car Indica
TELCO launched Indica when the TATA group was in red Telco chairman Ratan Tata said that the 1400 cc car
Indica would drive the company out of the red
Tata while talking to reporters at the IETF 99 in a videoconference from Mumbai said that the overwhelming
response of over 125 lakh initial bookings for the Indica had come as a surprise It seems we touched the
national chord somewhere as people responded to the fact that this is the first Indian car said Tata Indica is not
the end of the road for Telco when it comes to passenger cars It is just the beginning as there are more to come
said Tata adding that the company was working on another mid-size car after Indica
Telco had to produce 60000 cars a year to break-even The group created two
organizations within Telco one dealing with commercial vehicles and the other with passenger cars The
company under took a major restructuring exercise whereby the passenger car and commercial vehicles divisions
would function as two separate business units Telco had a strategy to go for exports after addressing the initial
requirements of the domestic market
Awards and Recognition
In May 2000 Tata Engineering and Locomotive Company Ltd (Telco) won a national award for successful
indigenous technology used in the Indica car project The award titled National award for successful
commercialization of indigenous technology by an industrial concern for indigenous development and
commercialization of Tata Indica car was presented by the minister for human resource development science and
technology and ocean development
Dr Murli Manohar Joshi
37
In November 1999 Telco was awarded the Department of scientific and industrial research
national award for indigenous design of the Tata Indica It was the first company in India to implement stringent
emission norms well ahead of the mandate dates
Promotions
The Indica advertising made interest for the car go into overdrive The campaign revolved around the premise that
the Indica would not just meet peoples expectations it would exceed them Every advertisement has a story to
tell
Pre launch Campaign
The Indica campaign began in the right earnest in December 1998 It was advertised as the launch of a car that
will spell doom for the small cars It was directly aimed at Maruti 800 The ad line used in the first campaign was
ldquoCar makers will suddenly remember all the thing they forgot to give yourdquo This hinted that Indica would have
more features than any of the existing small cars Indica used the catch lines like ldquo More car per Carrdquo ldquoMore
dreams per carrdquo to suggest that Indica will be bigger in size to the existing small cars yet be in the small car
category It competes with the mid size cars on size and give them a run for their money with its cheaper price
tag
At the launch of the car TELCO claimed that the people would never have to suffer from a small car again and
that the n end of the year (1998) would be the end of the small cars
Launch Campaign
The launch campaign of Indica focussed on the many advantages that it offered over other cars in the same
segment It promised the customers more than the current offerings Its first advertisement carried the following
catch line ldquo50cc moped 100cc bike 800cc car Time you asked for morerdquo
38
It then concentrated its efforts on criticizing the negative aspects of Maruti 800 and highlighted how Indica has
removed those very defects and presented a very sophisticated and modern car to the Indian customer It even
pointed out that the shape of Maruti was very unconventional and that people would prefer the shape of Indica to
Maruti 800 The advertisement read ldquo Box shaped bubble shaped wedge shaped But then Gentlemen prefer
curvesrdquo
The launch campaign also focussed on the roomy interiors of Indica a feature not offered by Maruti at that point
of time Also the expertise of TATA in diesel engines and fuel efficiency of these were the highlight of the launch
campaign of Tata Indica
Post Launch Campaigns
While the Launch campaign focussed on the features of Indica the post launch advertisements focussed on the
superior after sales service and longer warranty periods offered by Indica
Telco was the first company to offer an 18-month warranty period on engine parts The most famous line used
during this campaign was ldquoWe could go on and on about service or give you the one word summary TATArdquo
While their main adversary was the Maruti 800 Telco felt that it could also tap the mid size segment using the
selling point of space given by Indica They carried a campaign which said ldquoForget small cars we even make big
cars feel smallrdquo
It then went on to highlight the fact that Indica was Euro II compliant even before it was legally binding upon car
manufacturers to do so It also highlighted the concrete wall safety test that Indica withstands and tried to
showcase the car as a safe and strong car
39
Chapter 6 COST REDUCTION TECHNIQUES
IN TATA MOTORSrsquoS INDICA
40
Chapter 6 Tata Indica - The Making Of The Small Car
with objective of minimizing costs
The research provides an understanding of the issues concerning the supply chain management system at
Telco in regard to its small car Indica It outlines how Telco built the supply chain for the car by leveraging its
existing competencies and how it transformed itself from an integrated truck manufacturer to an automobile
integrator and from a product-centric company to competence- centric company The case discusses various
components of the supply chain and emphasises how Telco orchestrated them with the objective of minimizing
costs
ldquoTelcorsquos 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 comerdquo
- Business India March 22 1999
In the early 1990s Telcorsquos Chairman Ratan Tata (Tata) was flirting with the idea of developing a small
car By mid-1994 a rudimentary design was in place In 1995 Telco announced that it planned to build a car
which would be priced close to the Maruti 800 shaped like the Zen and spacious as an Ambassador
Producing the new small car ndash Indica ndash represented a different kind of challenge for Telco Should Tata succeed he
would change the face of Telco As a truck-maker Telco was so integrated that it even made it own castings and
forgings As an automaker it would have to focus on the value chain that stretched between raw materials and after-sales
41
service as well as assembling the parts into the complete automobile
For its new venture Telco outsourced 80 of the components (1200 of its 1500-plus parts) from 200-odd vendors To
develop the Indica Telco had to combine the learnings from its predecessors with its own unique supply chain
management strategies to ensure a sustainable low-cost platform
By learning to build and manage a supply chain it would set the ground for leveraging the capabilities of the
automotive component-manufacturers who already operated in its target markets In other words Telco planned
to use its skills as an integrator--bringing together products and services from both upstream and downstream
operations and packaging them for the customer under a brand name in its new venture
Globally a car could be built in 48 months with an investment of US $ 3 billion (Rs 1275 billion) Indica was
built in 31 months on a budget of Rs 17 billion This seemed to have been possible by focussing on the supply
chain
Chapter 61 THE OUTSOURCING STRATEGY
For Telco outsourcing seemed to be one of the most difficult aspects of producing the Indica Unlike global
automobile majors Ford Motors or General Motors which had a global vendor-base that could be replicated on
a smaller scale in India Telco had to create a vendor-base from scratch Moreover it did not have the expertise
either to design a car or to build an engine for it
Against this background Telco had to take its primary lsquomake-or-buyrsquo decisions for the key inputs-design
engine and transmission Telco decided to shop globally for the best deals and use its own expertise to make
42
whatever modifications were needed
(Refer Table I for the components outsourced by Telco)
TABLE I
OUTSOURCING THE COMPONENTS
Components Supplier
5 door hatchback IDEA Italy
Engine Institut Francais du Petrol
France
Assembly Line Nissanrsquos Plant Australia
Presses Mercedes Benz
Pistons and Piston rings India Pistons
Electrical components and fuel injection
systems Lucas-TVS
Steering systems Rane TRW Steering Systems
Clutch facings and rear (drum) brake linings Sundaram Brake Linings (SBL)
Seating Systems Tata-Johnson Controls
Radiators Tata-Toyo
Rear view mirrors Tata-Ficosa
Front and rear bumper dash-board inside
trims Tata-Auto Plastics
Air conditioning kits Subros Ltd
Wind screens and windows Asahi Glass
Fuel lines Imperial Auto
Differential assemblies Sona Steering
43
Sheet metal items JBM Tools
Source Business Today March 22 1999 and December 7 1999
Telco turned to the Italian company IDEA for the product-design It bought the engine from the Institut
Francais du Petrol of France and applied its engineering skills to adapt the engine requirements The transmission
was developed in-house at its Engineering Research Centre (ERC) at Pune Of the Rs 25 billion it spent on
designing the Indica the major share went in buying design tools and training its engineers in new skills Telcorsquos
engineers traveled regularly to the sites of its technology suppliers to receive training before the actual delivery
of the machines
Telco also outsourced its assembly line from Nissanrsquos plant in Australia for just Rs 900 million Telco
transplanted it at its factory at Chikli near Pune which was newly set up for Indica A new assembly line of the
same proportions would have cost at least Rs 4 billion Again of the 3 presses for the Indica only 1 was new
acquired for Rs 900 million while the other 2 were bought second-hand from Mercedes-Benz and modified to
suit the Indica
Telcorsquos engineers and the ERC did the application engineering programming installation and commissioning to
save around 45 of the technology costs The tooling for the car too was supplied internally by Telcorsquos machine
tool division To manage the supply chain better Telco kept the number of suppliers for Indica to just 200 as
compared to about 1000 for trucks Most of the parts were supplied by Telcorsquos traditional suppliersmdash TVS Rane
Group and Tata Auto Component Systems (Taco) who were single source suppliers Pressed parts assemblies
and drive shafts were sourced from single vendors
44
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
Chapter 53 Tata Motors ndashSuccessful Car Indica
TELCO launched Indica when the TATA group was in red Telco chairman Ratan Tata said that the 1400 cc car
Indica would drive the company out of the red
Tata while talking to reporters at the IETF 99 in a videoconference from Mumbai said that the overwhelming
response of over 125 lakh initial bookings for the Indica had come as a surprise It seems we touched the
national chord somewhere as people responded to the fact that this is the first Indian car said Tata Indica is not
the end of the road for Telco when it comes to passenger cars It is just the beginning as there are more to come
said Tata adding that the company was working on another mid-size car after Indica
Telco had to produce 60000 cars a year to break-even The group created two
organizations within Telco one dealing with commercial vehicles and the other with passenger cars The
company under took a major restructuring exercise whereby the passenger car and commercial vehicles divisions
would function as two separate business units Telco had a strategy to go for exports after addressing the initial
requirements of the domestic market
Awards and Recognition
In May 2000 Tata Engineering and Locomotive Company Ltd (Telco) won a national award for successful
indigenous technology used in the Indica car project The award titled National award for successful
commercialization of indigenous technology by an industrial concern for indigenous development and
commercialization of Tata Indica car was presented by the minister for human resource development science and
technology and ocean development
Dr Murli Manohar Joshi
37
In November 1999 Telco was awarded the Department of scientific and industrial research
national award for indigenous design of the Tata Indica It was the first company in India to implement stringent
emission norms well ahead of the mandate dates
Promotions
The Indica advertising made interest for the car go into overdrive The campaign revolved around the premise that
the Indica would not just meet peoples expectations it would exceed them Every advertisement has a story to
tell
Pre launch Campaign
The Indica campaign began in the right earnest in December 1998 It was advertised as the launch of a car that
will spell doom for the small cars It was directly aimed at Maruti 800 The ad line used in the first campaign was
ldquoCar makers will suddenly remember all the thing they forgot to give yourdquo This hinted that Indica would have
more features than any of the existing small cars Indica used the catch lines like ldquo More car per Carrdquo ldquoMore
dreams per carrdquo to suggest that Indica will be bigger in size to the existing small cars yet be in the small car
category It competes with the mid size cars on size and give them a run for their money with its cheaper price
tag
At the launch of the car TELCO claimed that the people would never have to suffer from a small car again and
that the n end of the year (1998) would be the end of the small cars
Launch Campaign
The launch campaign of Indica focussed on the many advantages that it offered over other cars in the same
segment It promised the customers more than the current offerings Its first advertisement carried the following
catch line ldquo50cc moped 100cc bike 800cc car Time you asked for morerdquo
38
It then concentrated its efforts on criticizing the negative aspects of Maruti 800 and highlighted how Indica has
removed those very defects and presented a very sophisticated and modern car to the Indian customer It even
pointed out that the shape of Maruti was very unconventional and that people would prefer the shape of Indica to
Maruti 800 The advertisement read ldquo Box shaped bubble shaped wedge shaped But then Gentlemen prefer
curvesrdquo
The launch campaign also focussed on the roomy interiors of Indica a feature not offered by Maruti at that point
of time Also the expertise of TATA in diesel engines and fuel efficiency of these were the highlight of the launch
campaign of Tata Indica
Post Launch Campaigns
While the Launch campaign focussed on the features of Indica the post launch advertisements focussed on the
superior after sales service and longer warranty periods offered by Indica
Telco was the first company to offer an 18-month warranty period on engine parts The most famous line used
during this campaign was ldquoWe could go on and on about service or give you the one word summary TATArdquo
While their main adversary was the Maruti 800 Telco felt that it could also tap the mid size segment using the
selling point of space given by Indica They carried a campaign which said ldquoForget small cars we even make big
cars feel smallrdquo
It then went on to highlight the fact that Indica was Euro II compliant even before it was legally binding upon car
manufacturers to do so It also highlighted the concrete wall safety test that Indica withstands and tried to
showcase the car as a safe and strong car
39
Chapter 6 COST REDUCTION TECHNIQUES
IN TATA MOTORSrsquoS INDICA
40
Chapter 6 Tata Indica - The Making Of The Small Car
with objective of minimizing costs
The research provides an understanding of the issues concerning the supply chain management system at
Telco in regard to its small car Indica It outlines how Telco built the supply chain for the car by leveraging its
existing competencies and how it transformed itself from an integrated truck manufacturer to an automobile
integrator and from a product-centric company to competence- centric company The case discusses various
components of the supply chain and emphasises how Telco orchestrated them with the objective of minimizing
costs
ldquoTelcorsquos 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 comerdquo
- Business India March 22 1999
In the early 1990s Telcorsquos Chairman Ratan Tata (Tata) was flirting with the idea of developing a small
car By mid-1994 a rudimentary design was in place In 1995 Telco announced that it planned to build a car
which would be priced close to the Maruti 800 shaped like the Zen and spacious as an Ambassador
Producing the new small car ndash Indica ndash represented a different kind of challenge for Telco Should Tata succeed he
would change the face of Telco As a truck-maker Telco was so integrated that it even made it own castings and
forgings As an automaker it would have to focus on the value chain that stretched between raw materials and after-sales
41
service as well as assembling the parts into the complete automobile
For its new venture Telco outsourced 80 of the components (1200 of its 1500-plus parts) from 200-odd vendors To
develop the Indica Telco had to combine the learnings from its predecessors with its own unique supply chain
management strategies to ensure a sustainable low-cost platform
By learning to build and manage a supply chain it would set the ground for leveraging the capabilities of the
automotive component-manufacturers who already operated in its target markets In other words Telco planned
to use its skills as an integrator--bringing together products and services from both upstream and downstream
operations and packaging them for the customer under a brand name in its new venture
Globally a car could be built in 48 months with an investment of US $ 3 billion (Rs 1275 billion) Indica was
built in 31 months on a budget of Rs 17 billion This seemed to have been possible by focussing on the supply
chain
Chapter 61 THE OUTSOURCING STRATEGY
For Telco outsourcing seemed to be one of the most difficult aspects of producing the Indica Unlike global
automobile majors Ford Motors or General Motors which had a global vendor-base that could be replicated on
a smaller scale in India Telco had to create a vendor-base from scratch Moreover it did not have the expertise
either to design a car or to build an engine for it
Against this background Telco had to take its primary lsquomake-or-buyrsquo decisions for the key inputs-design
engine and transmission Telco decided to shop globally for the best deals and use its own expertise to make
42
whatever modifications were needed
(Refer Table I for the components outsourced by Telco)
TABLE I
OUTSOURCING THE COMPONENTS
Components Supplier
5 door hatchback IDEA Italy
Engine Institut Francais du Petrol
France
Assembly Line Nissanrsquos Plant Australia
Presses Mercedes Benz
Pistons and Piston rings India Pistons
Electrical components and fuel injection
systems Lucas-TVS
Steering systems Rane TRW Steering Systems
Clutch facings and rear (drum) brake linings Sundaram Brake Linings (SBL)
Seating Systems Tata-Johnson Controls
Radiators Tata-Toyo
Rear view mirrors Tata-Ficosa
Front and rear bumper dash-board inside
trims Tata-Auto Plastics
Air conditioning kits Subros Ltd
Wind screens and windows Asahi Glass
Fuel lines Imperial Auto
Differential assemblies Sona Steering
43
Sheet metal items JBM Tools
Source Business Today March 22 1999 and December 7 1999
Telco turned to the Italian company IDEA for the product-design It bought the engine from the Institut
Francais du Petrol of France and applied its engineering skills to adapt the engine requirements The transmission
was developed in-house at its Engineering Research Centre (ERC) at Pune Of the Rs 25 billion it spent on
designing the Indica the major share went in buying design tools and training its engineers in new skills Telcorsquos
engineers traveled regularly to the sites of its technology suppliers to receive training before the actual delivery
of the machines
Telco also outsourced its assembly line from Nissanrsquos plant in Australia for just Rs 900 million Telco
transplanted it at its factory at Chikli near Pune which was newly set up for Indica A new assembly line of the
same proportions would have cost at least Rs 4 billion Again of the 3 presses for the Indica only 1 was new
acquired for Rs 900 million while the other 2 were bought second-hand from Mercedes-Benz and modified to
suit the Indica
Telcorsquos engineers and the ERC did the application engineering programming installation and commissioning to
save around 45 of the technology costs The tooling for the car too was supplied internally by Telcorsquos machine
tool division To manage the supply chain better Telco kept the number of suppliers for Indica to just 200 as
compared to about 1000 for trucks Most of the parts were supplied by Telcorsquos traditional suppliersmdash TVS Rane
Group and Tata Auto Component Systems (Taco) who were single source suppliers Pressed parts assemblies
and drive shafts were sourced from single vendors
44
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
In November 1999 Telco was awarded the Department of scientific and industrial research
national award for indigenous design of the Tata Indica It was the first company in India to implement stringent
emission norms well ahead of the mandate dates
Promotions
The Indica advertising made interest for the car go into overdrive The campaign revolved around the premise that
the Indica would not just meet peoples expectations it would exceed them Every advertisement has a story to
tell
Pre launch Campaign
The Indica campaign began in the right earnest in December 1998 It was advertised as the launch of a car that
will spell doom for the small cars It was directly aimed at Maruti 800 The ad line used in the first campaign was
ldquoCar makers will suddenly remember all the thing they forgot to give yourdquo This hinted that Indica would have
more features than any of the existing small cars Indica used the catch lines like ldquo More car per Carrdquo ldquoMore
dreams per carrdquo to suggest that Indica will be bigger in size to the existing small cars yet be in the small car
category It competes with the mid size cars on size and give them a run for their money with its cheaper price
tag
At the launch of the car TELCO claimed that the people would never have to suffer from a small car again and
that the n end of the year (1998) would be the end of the small cars
Launch Campaign
The launch campaign of Indica focussed on the many advantages that it offered over other cars in the same
segment It promised the customers more than the current offerings Its first advertisement carried the following
catch line ldquo50cc moped 100cc bike 800cc car Time you asked for morerdquo
38
It then concentrated its efforts on criticizing the negative aspects of Maruti 800 and highlighted how Indica has
removed those very defects and presented a very sophisticated and modern car to the Indian customer It even
pointed out that the shape of Maruti was very unconventional and that people would prefer the shape of Indica to
Maruti 800 The advertisement read ldquo Box shaped bubble shaped wedge shaped But then Gentlemen prefer
curvesrdquo
The launch campaign also focussed on the roomy interiors of Indica a feature not offered by Maruti at that point
of time Also the expertise of TATA in diesel engines and fuel efficiency of these were the highlight of the launch
campaign of Tata Indica
Post Launch Campaigns
While the Launch campaign focussed on the features of Indica the post launch advertisements focussed on the
superior after sales service and longer warranty periods offered by Indica
Telco was the first company to offer an 18-month warranty period on engine parts The most famous line used
during this campaign was ldquoWe could go on and on about service or give you the one word summary TATArdquo
While their main adversary was the Maruti 800 Telco felt that it could also tap the mid size segment using the
selling point of space given by Indica They carried a campaign which said ldquoForget small cars we even make big
cars feel smallrdquo
It then went on to highlight the fact that Indica was Euro II compliant even before it was legally binding upon car
manufacturers to do so It also highlighted the concrete wall safety test that Indica withstands and tried to
showcase the car as a safe and strong car
39
Chapter 6 COST REDUCTION TECHNIQUES
IN TATA MOTORSrsquoS INDICA
40
Chapter 6 Tata Indica - The Making Of The Small Car
with objective of minimizing costs
The research provides an understanding of the issues concerning the supply chain management system at
Telco in regard to its small car Indica It outlines how Telco built the supply chain for the car by leveraging its
existing competencies and how it transformed itself from an integrated truck manufacturer to an automobile
integrator and from a product-centric company to competence- centric company The case discusses various
components of the supply chain and emphasises how Telco orchestrated them with the objective of minimizing
costs
ldquoTelcorsquos 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 comerdquo
- Business India March 22 1999
In the early 1990s Telcorsquos Chairman Ratan Tata (Tata) was flirting with the idea of developing a small
car By mid-1994 a rudimentary design was in place In 1995 Telco announced that it planned to build a car
which would be priced close to the Maruti 800 shaped like the Zen and spacious as an Ambassador
Producing the new small car ndash Indica ndash represented a different kind of challenge for Telco Should Tata succeed he
would change the face of Telco As a truck-maker Telco was so integrated that it even made it own castings and
forgings As an automaker it would have to focus on the value chain that stretched between raw materials and after-sales
41
service as well as assembling the parts into the complete automobile
For its new venture Telco outsourced 80 of the components (1200 of its 1500-plus parts) from 200-odd vendors To
develop the Indica Telco had to combine the learnings from its predecessors with its own unique supply chain
management strategies to ensure a sustainable low-cost platform
By learning to build and manage a supply chain it would set the ground for leveraging the capabilities of the
automotive component-manufacturers who already operated in its target markets In other words Telco planned
to use its skills as an integrator--bringing together products and services from both upstream and downstream
operations and packaging them for the customer under a brand name in its new venture
Globally a car could be built in 48 months with an investment of US $ 3 billion (Rs 1275 billion) Indica was
built in 31 months on a budget of Rs 17 billion This seemed to have been possible by focussing on the supply
chain
Chapter 61 THE OUTSOURCING STRATEGY
For Telco outsourcing seemed to be one of the most difficult aspects of producing the Indica Unlike global
automobile majors Ford Motors or General Motors which had a global vendor-base that could be replicated on
a smaller scale in India Telco had to create a vendor-base from scratch Moreover it did not have the expertise
either to design a car or to build an engine for it
Against this background Telco had to take its primary lsquomake-or-buyrsquo decisions for the key inputs-design
engine and transmission Telco decided to shop globally for the best deals and use its own expertise to make
42
whatever modifications were needed
(Refer Table I for the components outsourced by Telco)
TABLE I
OUTSOURCING THE COMPONENTS
Components Supplier
5 door hatchback IDEA Italy
Engine Institut Francais du Petrol
France
Assembly Line Nissanrsquos Plant Australia
Presses Mercedes Benz
Pistons and Piston rings India Pistons
Electrical components and fuel injection
systems Lucas-TVS
Steering systems Rane TRW Steering Systems
Clutch facings and rear (drum) brake linings Sundaram Brake Linings (SBL)
Seating Systems Tata-Johnson Controls
Radiators Tata-Toyo
Rear view mirrors Tata-Ficosa
Front and rear bumper dash-board inside
trims Tata-Auto Plastics
Air conditioning kits Subros Ltd
Wind screens and windows Asahi Glass
Fuel lines Imperial Auto
Differential assemblies Sona Steering
43
Sheet metal items JBM Tools
Source Business Today March 22 1999 and December 7 1999
Telco turned to the Italian company IDEA for the product-design It bought the engine from the Institut
Francais du Petrol of France and applied its engineering skills to adapt the engine requirements The transmission
was developed in-house at its Engineering Research Centre (ERC) at Pune Of the Rs 25 billion it spent on
designing the Indica the major share went in buying design tools and training its engineers in new skills Telcorsquos
engineers traveled regularly to the sites of its technology suppliers to receive training before the actual delivery
of the machines
Telco also outsourced its assembly line from Nissanrsquos plant in Australia for just Rs 900 million Telco
transplanted it at its factory at Chikli near Pune which was newly set up for Indica A new assembly line of the
same proportions would have cost at least Rs 4 billion Again of the 3 presses for the Indica only 1 was new
acquired for Rs 900 million while the other 2 were bought second-hand from Mercedes-Benz and modified to
suit the Indica
Telcorsquos engineers and the ERC did the application engineering programming installation and commissioning to
save around 45 of the technology costs The tooling for the car too was supplied internally by Telcorsquos machine
tool division To manage the supply chain better Telco kept the number of suppliers for Indica to just 200 as
compared to about 1000 for trucks Most of the parts were supplied by Telcorsquos traditional suppliersmdash TVS Rane
Group and Tata Auto Component Systems (Taco) who were single source suppliers Pressed parts assemblies
and drive shafts were sourced from single vendors
44
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
It then concentrated its efforts on criticizing the negative aspects of Maruti 800 and highlighted how Indica has
removed those very defects and presented a very sophisticated and modern car to the Indian customer It even
pointed out that the shape of Maruti was very unconventional and that people would prefer the shape of Indica to
Maruti 800 The advertisement read ldquo Box shaped bubble shaped wedge shaped But then Gentlemen prefer
curvesrdquo
The launch campaign also focussed on the roomy interiors of Indica a feature not offered by Maruti at that point
of time Also the expertise of TATA in diesel engines and fuel efficiency of these were the highlight of the launch
campaign of Tata Indica
Post Launch Campaigns
While the Launch campaign focussed on the features of Indica the post launch advertisements focussed on the
superior after sales service and longer warranty periods offered by Indica
Telco was the first company to offer an 18-month warranty period on engine parts The most famous line used
during this campaign was ldquoWe could go on and on about service or give you the one word summary TATArdquo
While their main adversary was the Maruti 800 Telco felt that it could also tap the mid size segment using the
selling point of space given by Indica They carried a campaign which said ldquoForget small cars we even make big
cars feel smallrdquo
It then went on to highlight the fact that Indica was Euro II compliant even before it was legally binding upon car
manufacturers to do so It also highlighted the concrete wall safety test that Indica withstands and tried to
showcase the car as a safe and strong car
39
Chapter 6 COST REDUCTION TECHNIQUES
IN TATA MOTORSrsquoS INDICA
40
Chapter 6 Tata Indica - The Making Of The Small Car
with objective of minimizing costs
The research provides an understanding of the issues concerning the supply chain management system at
Telco in regard to its small car Indica It outlines how Telco built the supply chain for the car by leveraging its
existing competencies and how it transformed itself from an integrated truck manufacturer to an automobile
integrator and from a product-centric company to competence- centric company The case discusses various
components of the supply chain and emphasises how Telco orchestrated them with the objective of minimizing
costs
ldquoTelcorsquos 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 comerdquo
- Business India March 22 1999
In the early 1990s Telcorsquos Chairman Ratan Tata (Tata) was flirting with the idea of developing a small
car By mid-1994 a rudimentary design was in place In 1995 Telco announced that it planned to build a car
which would be priced close to the Maruti 800 shaped like the Zen and spacious as an Ambassador
Producing the new small car ndash Indica ndash represented a different kind of challenge for Telco Should Tata succeed he
would change the face of Telco As a truck-maker Telco was so integrated that it even made it own castings and
forgings As an automaker it would have to focus on the value chain that stretched between raw materials and after-sales
41
service as well as assembling the parts into the complete automobile
For its new venture Telco outsourced 80 of the components (1200 of its 1500-plus parts) from 200-odd vendors To
develop the Indica Telco had to combine the learnings from its predecessors with its own unique supply chain
management strategies to ensure a sustainable low-cost platform
By learning to build and manage a supply chain it would set the ground for leveraging the capabilities of the
automotive component-manufacturers who already operated in its target markets In other words Telco planned
to use its skills as an integrator--bringing together products and services from both upstream and downstream
operations and packaging them for the customer under a brand name in its new venture
Globally a car could be built in 48 months with an investment of US $ 3 billion (Rs 1275 billion) Indica was
built in 31 months on a budget of Rs 17 billion This seemed to have been possible by focussing on the supply
chain
Chapter 61 THE OUTSOURCING STRATEGY
For Telco outsourcing seemed to be one of the most difficult aspects of producing the Indica Unlike global
automobile majors Ford Motors or General Motors which had a global vendor-base that could be replicated on
a smaller scale in India Telco had to create a vendor-base from scratch Moreover it did not have the expertise
either to design a car or to build an engine for it
Against this background Telco had to take its primary lsquomake-or-buyrsquo decisions for the key inputs-design
engine and transmission Telco decided to shop globally for the best deals and use its own expertise to make
42
whatever modifications were needed
(Refer Table I for the components outsourced by Telco)
TABLE I
OUTSOURCING THE COMPONENTS
Components Supplier
5 door hatchback IDEA Italy
Engine Institut Francais du Petrol
France
Assembly Line Nissanrsquos Plant Australia
Presses Mercedes Benz
Pistons and Piston rings India Pistons
Electrical components and fuel injection
systems Lucas-TVS
Steering systems Rane TRW Steering Systems
Clutch facings and rear (drum) brake linings Sundaram Brake Linings (SBL)
Seating Systems Tata-Johnson Controls
Radiators Tata-Toyo
Rear view mirrors Tata-Ficosa
Front and rear bumper dash-board inside
trims Tata-Auto Plastics
Air conditioning kits Subros Ltd
Wind screens and windows Asahi Glass
Fuel lines Imperial Auto
Differential assemblies Sona Steering
43
Sheet metal items JBM Tools
Source Business Today March 22 1999 and December 7 1999
Telco turned to the Italian company IDEA for the product-design It bought the engine from the Institut
Francais du Petrol of France and applied its engineering skills to adapt the engine requirements The transmission
was developed in-house at its Engineering Research Centre (ERC) at Pune Of the Rs 25 billion it spent on
designing the Indica the major share went in buying design tools and training its engineers in new skills Telcorsquos
engineers traveled regularly to the sites of its technology suppliers to receive training before the actual delivery
of the machines
Telco also outsourced its assembly line from Nissanrsquos plant in Australia for just Rs 900 million Telco
transplanted it at its factory at Chikli near Pune which was newly set up for Indica A new assembly line of the
same proportions would have cost at least Rs 4 billion Again of the 3 presses for the Indica only 1 was new
acquired for Rs 900 million while the other 2 were bought second-hand from Mercedes-Benz and modified to
suit the Indica
Telcorsquos engineers and the ERC did the application engineering programming installation and commissioning to
save around 45 of the technology costs The tooling for the car too was supplied internally by Telcorsquos machine
tool division To manage the supply chain better Telco kept the number of suppliers for Indica to just 200 as
compared to about 1000 for trucks Most of the parts were supplied by Telcorsquos traditional suppliersmdash TVS Rane
Group and Tata Auto Component Systems (Taco) who were single source suppliers Pressed parts assemblies
and drive shafts were sourced from single vendors
44
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
Chapter 6 COST REDUCTION TECHNIQUES
IN TATA MOTORSrsquoS INDICA
40
Chapter 6 Tata Indica - The Making Of The Small Car
with objective of minimizing costs
The research provides an understanding of the issues concerning the supply chain management system at
Telco in regard to its small car Indica It outlines how Telco built the supply chain for the car by leveraging its
existing competencies and how it transformed itself from an integrated truck manufacturer to an automobile
integrator and from a product-centric company to competence- centric company The case discusses various
components of the supply chain and emphasises how Telco orchestrated them with the objective of minimizing
costs
ldquoTelcorsquos 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 comerdquo
- Business India March 22 1999
In the early 1990s Telcorsquos Chairman Ratan Tata (Tata) was flirting with the idea of developing a small
car By mid-1994 a rudimentary design was in place In 1995 Telco announced that it planned to build a car
which would be priced close to the Maruti 800 shaped like the Zen and spacious as an Ambassador
Producing the new small car ndash Indica ndash represented a different kind of challenge for Telco Should Tata succeed he
would change the face of Telco As a truck-maker Telco was so integrated that it even made it own castings and
forgings As an automaker it would have to focus on the value chain that stretched between raw materials and after-sales
41
service as well as assembling the parts into the complete automobile
For its new venture Telco outsourced 80 of the components (1200 of its 1500-plus parts) from 200-odd vendors To
develop the Indica Telco had to combine the learnings from its predecessors with its own unique supply chain
management strategies to ensure a sustainable low-cost platform
By learning to build and manage a supply chain it would set the ground for leveraging the capabilities of the
automotive component-manufacturers who already operated in its target markets In other words Telco planned
to use its skills as an integrator--bringing together products and services from both upstream and downstream
operations and packaging them for the customer under a brand name in its new venture
Globally a car could be built in 48 months with an investment of US $ 3 billion (Rs 1275 billion) Indica was
built in 31 months on a budget of Rs 17 billion This seemed to have been possible by focussing on the supply
chain
Chapter 61 THE OUTSOURCING STRATEGY
For Telco outsourcing seemed to be one of the most difficult aspects of producing the Indica Unlike global
automobile majors Ford Motors or General Motors which had a global vendor-base that could be replicated on
a smaller scale in India Telco had to create a vendor-base from scratch Moreover it did not have the expertise
either to design a car or to build an engine for it
Against this background Telco had to take its primary lsquomake-or-buyrsquo decisions for the key inputs-design
engine and transmission Telco decided to shop globally for the best deals and use its own expertise to make
42
whatever modifications were needed
(Refer Table I for the components outsourced by Telco)
TABLE I
OUTSOURCING THE COMPONENTS
Components Supplier
5 door hatchback IDEA Italy
Engine Institut Francais du Petrol
France
Assembly Line Nissanrsquos Plant Australia
Presses Mercedes Benz
Pistons and Piston rings India Pistons
Electrical components and fuel injection
systems Lucas-TVS
Steering systems Rane TRW Steering Systems
Clutch facings and rear (drum) brake linings Sundaram Brake Linings (SBL)
Seating Systems Tata-Johnson Controls
Radiators Tata-Toyo
Rear view mirrors Tata-Ficosa
Front and rear bumper dash-board inside
trims Tata-Auto Plastics
Air conditioning kits Subros Ltd
Wind screens and windows Asahi Glass
Fuel lines Imperial Auto
Differential assemblies Sona Steering
43
Sheet metal items JBM Tools
Source Business Today March 22 1999 and December 7 1999
Telco turned to the Italian company IDEA for the product-design It bought the engine from the Institut
Francais du Petrol of France and applied its engineering skills to adapt the engine requirements The transmission
was developed in-house at its Engineering Research Centre (ERC) at Pune Of the Rs 25 billion it spent on
designing the Indica the major share went in buying design tools and training its engineers in new skills Telcorsquos
engineers traveled regularly to the sites of its technology suppliers to receive training before the actual delivery
of the machines
Telco also outsourced its assembly line from Nissanrsquos plant in Australia for just Rs 900 million Telco
transplanted it at its factory at Chikli near Pune which was newly set up for Indica A new assembly line of the
same proportions would have cost at least Rs 4 billion Again of the 3 presses for the Indica only 1 was new
acquired for Rs 900 million while the other 2 were bought second-hand from Mercedes-Benz and modified to
suit the Indica
Telcorsquos engineers and the ERC did the application engineering programming installation and commissioning to
save around 45 of the technology costs The tooling for the car too was supplied internally by Telcorsquos machine
tool division To manage the supply chain better Telco kept the number of suppliers for Indica to just 200 as
compared to about 1000 for trucks Most of the parts were supplied by Telcorsquos traditional suppliersmdash TVS Rane
Group and Tata Auto Component Systems (Taco) who were single source suppliers Pressed parts assemblies
and drive shafts were sourced from single vendors
44
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
Chapter 6 Tata Indica - The Making Of The Small Car
with objective of minimizing costs
The research provides an understanding of the issues concerning the supply chain management system at
Telco in regard to its small car Indica It outlines how Telco built the supply chain for the car by leveraging its
existing competencies and how it transformed itself from an integrated truck manufacturer to an automobile
integrator and from a product-centric company to competence- centric company The case discusses various
components of the supply chain and emphasises how Telco orchestrated them with the objective of minimizing
costs
ldquoTelcorsquos 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 comerdquo
- Business India March 22 1999
In the early 1990s Telcorsquos Chairman Ratan Tata (Tata) was flirting with the idea of developing a small
car By mid-1994 a rudimentary design was in place In 1995 Telco announced that it planned to build a car
which would be priced close to the Maruti 800 shaped like the Zen and spacious as an Ambassador
Producing the new small car ndash Indica ndash represented a different kind of challenge for Telco Should Tata succeed he
would change the face of Telco As a truck-maker Telco was so integrated that it even made it own castings and
forgings As an automaker it would have to focus on the value chain that stretched between raw materials and after-sales
41
service as well as assembling the parts into the complete automobile
For its new venture Telco outsourced 80 of the components (1200 of its 1500-plus parts) from 200-odd vendors To
develop the Indica Telco had to combine the learnings from its predecessors with its own unique supply chain
management strategies to ensure a sustainable low-cost platform
By learning to build and manage a supply chain it would set the ground for leveraging the capabilities of the
automotive component-manufacturers who already operated in its target markets In other words Telco planned
to use its skills as an integrator--bringing together products and services from both upstream and downstream
operations and packaging them for the customer under a brand name in its new venture
Globally a car could be built in 48 months with an investment of US $ 3 billion (Rs 1275 billion) Indica was
built in 31 months on a budget of Rs 17 billion This seemed to have been possible by focussing on the supply
chain
Chapter 61 THE OUTSOURCING STRATEGY
For Telco outsourcing seemed to be one of the most difficult aspects of producing the Indica Unlike global
automobile majors Ford Motors or General Motors which had a global vendor-base that could be replicated on
a smaller scale in India Telco had to create a vendor-base from scratch Moreover it did not have the expertise
either to design a car or to build an engine for it
Against this background Telco had to take its primary lsquomake-or-buyrsquo decisions for the key inputs-design
engine and transmission Telco decided to shop globally for the best deals and use its own expertise to make
42
whatever modifications were needed
(Refer Table I for the components outsourced by Telco)
TABLE I
OUTSOURCING THE COMPONENTS
Components Supplier
5 door hatchback IDEA Italy
Engine Institut Francais du Petrol
France
Assembly Line Nissanrsquos Plant Australia
Presses Mercedes Benz
Pistons and Piston rings India Pistons
Electrical components and fuel injection
systems Lucas-TVS
Steering systems Rane TRW Steering Systems
Clutch facings and rear (drum) brake linings Sundaram Brake Linings (SBL)
Seating Systems Tata-Johnson Controls
Radiators Tata-Toyo
Rear view mirrors Tata-Ficosa
Front and rear bumper dash-board inside
trims Tata-Auto Plastics
Air conditioning kits Subros Ltd
Wind screens and windows Asahi Glass
Fuel lines Imperial Auto
Differential assemblies Sona Steering
43
Sheet metal items JBM Tools
Source Business Today March 22 1999 and December 7 1999
Telco turned to the Italian company IDEA for the product-design It bought the engine from the Institut
Francais du Petrol of France and applied its engineering skills to adapt the engine requirements The transmission
was developed in-house at its Engineering Research Centre (ERC) at Pune Of the Rs 25 billion it spent on
designing the Indica the major share went in buying design tools and training its engineers in new skills Telcorsquos
engineers traveled regularly to the sites of its technology suppliers to receive training before the actual delivery
of the machines
Telco also outsourced its assembly line from Nissanrsquos plant in Australia for just Rs 900 million Telco
transplanted it at its factory at Chikli near Pune which was newly set up for Indica A new assembly line of the
same proportions would have cost at least Rs 4 billion Again of the 3 presses for the Indica only 1 was new
acquired for Rs 900 million while the other 2 were bought second-hand from Mercedes-Benz and modified to
suit the Indica
Telcorsquos engineers and the ERC did the application engineering programming installation and commissioning to
save around 45 of the technology costs The tooling for the car too was supplied internally by Telcorsquos machine
tool division To manage the supply chain better Telco kept the number of suppliers for Indica to just 200 as
compared to about 1000 for trucks Most of the parts were supplied by Telcorsquos traditional suppliersmdash TVS Rane
Group and Tata Auto Component Systems (Taco) who were single source suppliers Pressed parts assemblies
and drive shafts were sourced from single vendors
44
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
service as well as assembling the parts into the complete automobile
For its new venture Telco outsourced 80 of the components (1200 of its 1500-plus parts) from 200-odd vendors To
develop the Indica Telco had to combine the learnings from its predecessors with its own unique supply chain
management strategies to ensure a sustainable low-cost platform
By learning to build and manage a supply chain it would set the ground for leveraging the capabilities of the
automotive component-manufacturers who already operated in its target markets In other words Telco planned
to use its skills as an integrator--bringing together products and services from both upstream and downstream
operations and packaging them for the customer under a brand name in its new venture
Globally a car could be built in 48 months with an investment of US $ 3 billion (Rs 1275 billion) Indica was
built in 31 months on a budget of Rs 17 billion This seemed to have been possible by focussing on the supply
chain
Chapter 61 THE OUTSOURCING STRATEGY
For Telco outsourcing seemed to be one of the most difficult aspects of producing the Indica Unlike global
automobile majors Ford Motors or General Motors which had a global vendor-base that could be replicated on
a smaller scale in India Telco had to create a vendor-base from scratch Moreover it did not have the expertise
either to design a car or to build an engine for it
Against this background Telco had to take its primary lsquomake-or-buyrsquo decisions for the key inputs-design
engine and transmission Telco decided to shop globally for the best deals and use its own expertise to make
42
whatever modifications were needed
(Refer Table I for the components outsourced by Telco)
TABLE I
OUTSOURCING THE COMPONENTS
Components Supplier
5 door hatchback IDEA Italy
Engine Institut Francais du Petrol
France
Assembly Line Nissanrsquos Plant Australia
Presses Mercedes Benz
Pistons and Piston rings India Pistons
Electrical components and fuel injection
systems Lucas-TVS
Steering systems Rane TRW Steering Systems
Clutch facings and rear (drum) brake linings Sundaram Brake Linings (SBL)
Seating Systems Tata-Johnson Controls
Radiators Tata-Toyo
Rear view mirrors Tata-Ficosa
Front and rear bumper dash-board inside
trims Tata-Auto Plastics
Air conditioning kits Subros Ltd
Wind screens and windows Asahi Glass
Fuel lines Imperial Auto
Differential assemblies Sona Steering
43
Sheet metal items JBM Tools
Source Business Today March 22 1999 and December 7 1999
Telco turned to the Italian company IDEA for the product-design It bought the engine from the Institut
Francais du Petrol of France and applied its engineering skills to adapt the engine requirements The transmission
was developed in-house at its Engineering Research Centre (ERC) at Pune Of the Rs 25 billion it spent on
designing the Indica the major share went in buying design tools and training its engineers in new skills Telcorsquos
engineers traveled regularly to the sites of its technology suppliers to receive training before the actual delivery
of the machines
Telco also outsourced its assembly line from Nissanrsquos plant in Australia for just Rs 900 million Telco
transplanted it at its factory at Chikli near Pune which was newly set up for Indica A new assembly line of the
same proportions would have cost at least Rs 4 billion Again of the 3 presses for the Indica only 1 was new
acquired for Rs 900 million while the other 2 were bought second-hand from Mercedes-Benz and modified to
suit the Indica
Telcorsquos engineers and the ERC did the application engineering programming installation and commissioning to
save around 45 of the technology costs The tooling for the car too was supplied internally by Telcorsquos machine
tool division To manage the supply chain better Telco kept the number of suppliers for Indica to just 200 as
compared to about 1000 for trucks Most of the parts were supplied by Telcorsquos traditional suppliersmdash TVS Rane
Group and Tata Auto Component Systems (Taco) who were single source suppliers Pressed parts assemblies
and drive shafts were sourced from single vendors
44
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
whatever modifications were needed
(Refer Table I for the components outsourced by Telco)
TABLE I
OUTSOURCING THE COMPONENTS
Components Supplier
5 door hatchback IDEA Italy
Engine Institut Francais du Petrol
France
Assembly Line Nissanrsquos Plant Australia
Presses Mercedes Benz
Pistons and Piston rings India Pistons
Electrical components and fuel injection
systems Lucas-TVS
Steering systems Rane TRW Steering Systems
Clutch facings and rear (drum) brake linings Sundaram Brake Linings (SBL)
Seating Systems Tata-Johnson Controls
Radiators Tata-Toyo
Rear view mirrors Tata-Ficosa
Front and rear bumper dash-board inside
trims Tata-Auto Plastics
Air conditioning kits Subros Ltd
Wind screens and windows Asahi Glass
Fuel lines Imperial Auto
Differential assemblies Sona Steering
43
Sheet metal items JBM Tools
Source Business Today March 22 1999 and December 7 1999
Telco turned to the Italian company IDEA for the product-design It bought the engine from the Institut
Francais du Petrol of France and applied its engineering skills to adapt the engine requirements The transmission
was developed in-house at its Engineering Research Centre (ERC) at Pune Of the Rs 25 billion it spent on
designing the Indica the major share went in buying design tools and training its engineers in new skills Telcorsquos
engineers traveled regularly to the sites of its technology suppliers to receive training before the actual delivery
of the machines
Telco also outsourced its assembly line from Nissanrsquos plant in Australia for just Rs 900 million Telco
transplanted it at its factory at Chikli near Pune which was newly set up for Indica A new assembly line of the
same proportions would have cost at least Rs 4 billion Again of the 3 presses for the Indica only 1 was new
acquired for Rs 900 million while the other 2 were bought second-hand from Mercedes-Benz and modified to
suit the Indica
Telcorsquos engineers and the ERC did the application engineering programming installation and commissioning to
save around 45 of the technology costs The tooling for the car too was supplied internally by Telcorsquos machine
tool division To manage the supply chain better Telco kept the number of suppliers for Indica to just 200 as
compared to about 1000 for trucks Most of the parts were supplied by Telcorsquos traditional suppliersmdash TVS Rane
Group and Tata Auto Component Systems (Taco) who were single source suppliers Pressed parts assemblies
and drive shafts were sourced from single vendors
44
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
Sheet metal items JBM Tools
Source Business Today March 22 1999 and December 7 1999
Telco turned to the Italian company IDEA for the product-design It bought the engine from the Institut
Francais du Petrol of France and applied its engineering skills to adapt the engine requirements The transmission
was developed in-house at its Engineering Research Centre (ERC) at Pune Of the Rs 25 billion it spent on
designing the Indica the major share went in buying design tools and training its engineers in new skills Telcorsquos
engineers traveled regularly to the sites of its technology suppliers to receive training before the actual delivery
of the machines
Telco also outsourced its assembly line from Nissanrsquos plant in Australia for just Rs 900 million Telco
transplanted it at its factory at Chikli near Pune which was newly set up for Indica A new assembly line of the
same proportions would have cost at least Rs 4 billion Again of the 3 presses for the Indica only 1 was new
acquired for Rs 900 million while the other 2 were bought second-hand from Mercedes-Benz and modified to
suit the Indica
Telcorsquos engineers and the ERC did the application engineering programming installation and commissioning to
save around 45 of the technology costs The tooling for the car too was supplied internally by Telcorsquos machine
tool division To manage the supply chain better Telco kept the number of suppliers for Indica to just 200 as
compared to about 1000 for trucks Most of the parts were supplied by Telcorsquos traditional suppliersmdash TVS Rane
Group and Tata Auto Component Systems (Taco) who were single source suppliers Pressed parts assemblies
and drive shafts were sourced from single vendors
44
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
Chapter 62 VENDOR DEVELOPMENT
Once Telco made its make-or-buy choices the next step was to identify the vendors Most of the parts that went
into making Telco were sourced locally Except for some sheet metal parts cylindrical gaskets and belts--which
accounted for 2 of the component value the Indica was totally indigenous[1] K Mahesh CEO Sundaram Brake
Linings said ldquoLocalisation of components is the most important challenge a new manufacturer faces It is a time-
consuming and painstaking processrdquo
Telco employed a simple yardstick for selecting suppliers the ability to supply components at the negotiated
quality cost and quantities In the first stage of selection an initial assessment team from Telco evaluated the
supplier This was followed by self-evaluation of the supplier based on a format provided by Telco Then there
was a quality systems survey carried out by a Telco quality audit team
This was followed by design validation And then there was a manufacturing validation to ensure that the
supplier was following the proper manufacturing processes This was followed by the Production Part Approval
Process (PPAP) which certified the production quality R Chakraborty (Chakraborty) senior deputy general
manager materials amp supplier quality improvement group said ldquoWhen a vendor reached this stage our
comfort level in dealing with him goes up considerably with regard to quality and his ability to supply material
to us
We feel that he has a proper production process in place to ensure quality and timely suppliesrdquo Only a handful of
vendors met Telcorsquos stringent requirements Telco set up Supplier Quality Improvement Teams to improve the
vendorsrsquo systems to ensure that they produced defect-free parts
45
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
It applied a 13-step Quality Improvement Programme covering supplier self-evaluation thorough design-
validation and audit of supplier quality Another key to Telcorsquos successful vendor-base was a modern system of
process management Telcorsquos target-costing was broken up into vendor-wise cost targets and the suppliers had to
carry out their own value-engineering exercises to lower cost and improve quality
For example India Pistons which supplied the pistons and piston rings walked away with the Indica order
because it benchmarked itself against supplies to Maruti Udyog whereas the other vendors benchmarked
themselves against pistons supplied to Telcorsquos commercial vehicles
India Pistons invested Rs 15 million in toolings and Rs 25 million in a separate line at its Maraimalai Nagar
(Tamil Nadu) facility N Venkatramani CEO India Pistons commented ldquoTELCO is very particular about
logistics that raw materials have a supply trace be ready for assembly need no inspection It is a demanding
customerrdquo
Telco even involved its vendors in the design-process to give suppliers more lead time to innovate and for better
supply chain coordination Commented TK Balaji CEO Lucas-TVS which supplied electrical components and
fuel-injection systems for the Indica ldquoBy making vendors its partner early TELCO ensured both quality and
price-conformity Late involvement would have yielded different resultsrdquo
MS Kumar Director amp CEO Rane TRW Steering Systems (Rane) which supplied the steering systems for the Indica added
ldquoTELCO has been extremely supportive making available its entire RampD resources to our engineers It is one of the best
experiences we have had in product-developmentrdquo Telco wanted Rane to design a system that would meet the peculiarities of
Indian road conditions
46
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
Besides offering both manual and power systems Rane also had to come out with a left-hand drive variant for the export market
Rane had to go deep into application engineering because the front axle-weight of the Indica was heavier and its engine-
displacement higher Indica was not only compact which left less space but also heavy which strained the system Telco wanted
Rane to benchmark the maneuverability of the Indica against the Zen a much-lighter car
Rane took about 16 months to develop and get the steering system approved spending close to 2 man-years on it
It spent Rs 16 million on development costs for the power steering system--including tooling and dies--and Rs 10
million for the manual steering system Said PR Sarathy President Rane (Madras) ldquoTELCO gave us price-
targets We worked within them using value-engineering and concurrent engineering to lower our development
costs For all effective purposes we were an arm of TELCO during the processrdquo In the case of small vendors
Telco examined their processes- and cost-levels Telco configured its suppliers in 2 tiers Tier I suppliers had to
assemble sub-systems using components provided by Tier II vendors
Telco asked the latter to supply products at low margins to the former On its part Telco helped them lower their
costs by solving quality-related problems For instance SBL which supplied clutch-facings and rear (drum) brake
linings for the Indica developed them in-house VR Janardhanam President SBL remarked ldquoDespite its size
Telco has a lot of humility It is willing to work with even the smallest of vendors to meet its targetsrdquo
A typical brake-lining usually went through the following steps the raw material was converted into slabs the
slab was cut into the required length the cut piece went through 2 stages of grinding for the inner and the outer
diameters then the piece was drilled and finally champered But SBL brought down the number of operations
to 3 the raw material was straightaway converted into pieces of required length and the grinding was done to
only the outer diameter
47
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
And the company saved 15 because of this single-piece flow technique K Pandarinath Deputy General
Manager (Research) SBL commented ldquoTelco is a transparent company It allowed us to use all their facilities as
long as it helps develop a better product Our engineers spent several weeks working with Telcorsquos engineers on
perfecting the brake-liningsrdquo
Chapter 63 SUPPLY CHAIN
To keep its transaction costs low Telco configured its supply chain on a just-in-time basis All high-value
components were delivered daily and in the case of nearby suppliers twice a day Vendors who were located far
away from Pune set up local warehouses near the plant
The rationale for the relocation transportation costs alone accounted for 45 of the total logistics costs for a
company delays in supplies added to costs in terms of machine down-time at the plant Meanwhile on the shop
floor where the assembly line was located Telco had done away with the traditional store function
There was no material store in the Pune plant of Telco The truck loaded with the material first entered the
factory at the material gate where there was a documentation center A person at this center checked whether
the material was scheduled to arrive or not by keying in the part number and the supplier code
If the material was not scheduled to arrive the documents were not processed further and the truck was not
allowed to enter the factory premises Once it was cleared at the gate the truck proceeded to the receiving center
Once the items were unloaded unpacked and cleared for quantity and quality they were moved into the transit
area From there they went into what was called the lsquosuper marketrsquo The super market was close to the assembly
line In the super market the materials were arranged in such a way that the workers could easily access all the
48
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
material required on the assembly line without wasting much time and effort
The benefits of this just-in-time inventory system were that the inventories were low and so the interest costs
were also low Again the manpower required to handle the inventories was also low
For Telco a crucial link in the supply chain was its ability to forecast demand accurately which would help the
vendor plan his production-schedule in advance thus lowering costs Telco and Concorde employed market
research agencies to help forecast demand through trend analysis using the historical data technique
It used a complex web of correlation involving the countryrsquos economic situation competitorsrsquo products and
their USPs To ensure quick flow of information along the value chain Telco electronically linked its demand
forecasts to production and backwards to its suppliers
All its dealers were linked to the plant through VSATs(2) connected by e-mail to relay demand patterns on-line
to the Pune plant This reduced the order-processing time by 80 Analysts felt that by being online Telco
would save a minimum of 4 days from the order-to-despatch lead-time
For speedy delivery Telco resorted to inter-location transfers of the product between dealerships This would
ensure movement of the product to a place where there was more demand
This would make a big difference to finished goods inventory management once Telco started producing at
optimum capacity Telco also trimmed costs by making Concorde leaner than other dealerships with just 3 levels
managing director general managers and managers(3) Each of Concordersquos(1) general managers worked as
profit-centre heads of their individual business regions and reported directly to the managing director
49
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
Added AK Seth General Manager (Delhi) Concorde ldquoThe company wanted to create a lean and responsive
network with the primary objective being to meet customer requirements as quickly as possiblerdquo
(1) Telcorsquos dealer for Indica It had 9 dealerships and 25 outlets
(2) Very Small Aperture Terminal (VSAT) is a satellite communications system that serves home and
business users A VSAT end user needs a box that interfaces between the userrsquos computer and an outside antenna
with transceiver The transceiver receives or sends a signal to a satellite transponder in the sky The satellite sends
and receives signals from an earth station computer that acts as a hub for the system Each end user is
interconnected with the hub station via the satellite For one end user to communicate with another each
transmission has to first go to the hub station which transmits it via the satellite to the other end userrsquos VSAT
VSAT handles data voice and video signals
(3) Most other car-marketers in the country operated with a minimum of 5 levels
Chapter 64 LEVERAGING THE SUPPLY CHAIN
Indica marked the beginning of Telcorsquos drive into Indiarsquos auto market as an integrator with a multi-product
portfolio Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be
the core around which it would build its future car business Analysts also felt that Tata would use the supply
chain that fed the Indica to feed a whole range of Telco cars of the future
DC Anand CEO Anand Group said ldquoTelcorsquos capacity will be tested by how many new models it can come
up with--and how soon Is Telco in a position to do so Four years ago I would have said no Today I am not
going to underestimate their capacity They have demonstrated itrdquo
50
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
Business Today wrote ldquoLeveraging the low-cost supply chain that it has built Telco will launch a series of
other cars--priced both below and above the Indica straddling the entire spectrum--each of which will be
progressively easier to integraterdquo The supply infrastructure would become economical as the volume of the
business that Telco offered its vendors increased
The volume of business would increase with a larger number of cars The learning that it was extracting from the
Indica supply chain would also be available to the company as it moved into other products
There seemed to be a distinct opportunity for a smaller cheaper car positioned as an entry-level for the first-time
buyer Analysts felt that Telcorsquos supply chain management would become the pivot around which it could
assemble its passenger-car business
Chapter 65 Cost CuttingTo cut costs Tata Motors tried innovative techniques such as zero-based costing The companys engineers re-
worked the cost of components all over again For example earlier Tata Motors paid for its forged components
on a cost-plus basis as claimed by a vendor Under the new system it paid a price depending on the weight of the
forging leading to savings of 25 Prakash M Telang senior vice president (manufacturing) was appointed as
the cost-erosion champion and put in charge of the entire initiative Four specific areas were identified
-Direct material costs Reduction Projects
-Inventory Analysis-Just in Time
51
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
-Transporation Analysis
-Stock keeping Unit Analysis
Chapter 66 Quality Management
Tata Motors started a comprehensive quality improvement initiative in September 2000 The initiative played an
important role in the companys turnaround from a loss of Rs500 crores in the year ended March 2001 to a profit
of Rs28 crores in the first quarter of 2002-03 Every year about a quarter of Tata Motors workforce went
through training courses which were rated highly in the Indian engineering industry
Personnel were trained before building workshops In case of imported machines engineers and workers
were sent to the foreign manufacturers facilities to receive training well before the arrival of the machine
52
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
Chapter 67 Cost Reduction in Energy Consumption
By implementing various energy conservation projects there has been a consistent decrease in the
specific Electrical and Thermal Energy Consumption
53
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
Chapter 671 Energy Conservation Commitment Policy and Set Up
Tata Motors considers Energy Saving as a multi disciplinary approach Even the smallest cost reduction is going
to add directly to its profits in bottom line Plant energy profile consist of Electricity Gas Oil Light Diesel Oil
High Speed Diesel Oil Kerosene and Water Budget provisions are made exclusively for Energy conservation
management ( ECON ) Energy conservation plans policy and structure are reviewed periodically Plant has
conducted In house seminar on lsquoEnergy Conservationrsquo with external faculties like National Productivity Council
Atlas Copco Enercon Croma Engg and Thermax which was attended by participants from all plants of Auto
Sector Senior executives have attended lsquoEnergy Conservation Meetrsquo organized by CII and visited Reliance
Industries Godrej ICICI Towers to share energy conservation ideasEnergy Conservation week is celebrated
every year from 14th December to 21st December Poster and slogan competition on Energy saving was
conducted in every year
Energy Management policy is displayed every where in the plant for creating the energy conservation
awareness The company has formed cross functional teams for cost reduction through Energy savings
Each team comprises of Senior Executives as facilitators with members from each product units Safety
and Environment Department is also closely attached with Energy Conservation Cell Top management
like president vice- president General managers actively participate in the energy conservation program
and support the energy conservation plans by providing the necessary budgetary and morale help
The importance of energy conservation was emphasized through various forums and TPM (Total
Productive Maintenance) methodologyBy using TPM methodology plant has implemented more than
200 kaizens ( small improvements) like - Removal of unwanted motors Continuous to intermittent operating
of motors Timer for Blowers Heaters Providing air pressure regulatorsStopping idle running of motors
Photo cell control for lighting Combining activities etc
54
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
Energy Management Policy
middot Promote Energy saving and conservation of resources
middot Bench mark specific energy consumption with National amp International standards and setting up
systems to achieve them
middot Increase use of non-conventional sources of energy amp alternate fuel sources
middot Comply with the Energy Legislation and other regulations
middot Conduct regular Energy Audits to reduce energy wastage in all areas
middot Promote awareness among all employees through leaflets seminars competitions and company
visits
middot Recognise energy conservation initiatives taken by employees and award them
middot Reduce waste generation and promote disposal reuse and recycling in an Environment friendly
manner
middot Make an effort to reduce the cost continuously every year by adopting effective ldquoEnergy Management
Systemrdquo
Energy Conservation Achievements
During the period between 2003-2005 Mahindra amp Mahindra Ltd has implemented around 320 proposals
through Engineering initiatives workmenrsquos suggestion schemes Auditors recommendations and TPM
methodology resulting into total saving of Rs 589 lakhs with an investment of Rs 143 lakhs This has
resulted in a reduction of 15 in specific electrical energy consumption and 14 in specific thermal
energy consumption
55
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
Chaptera 672 Electrical Saving ndash ( Compressed Air)
1 Screw Compressor with Variable Frequency Drive
Before Installation
For 2200 cfm output compressed air requirement plant was running
four compressors having total motor capacity of 630 hp
Motor Capacity = 630 hp
Power Consumption per Annum = 2532 Lakhs kWh
Operating Cost = Rs 10763 Lakhs Annum
After Installation-
Screw compressor with VFD running in combination with existing
compressors having total motor capacity of 516 hp
Motor Capacity = 516 HP
Power consumption per annum = 2079 Lakhs kWh
Operating Cost = Rs 8835 Lakhs Annum
Saving = Rs 1920 Lakhs Annum
56
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
b) Electrical Savings Measures
1 Integrated ( IT ) gun in place of Conventional gun for Spot Welding
Before - Use of conventional spot welding mc gun
Power Rating - 150 KVA
Electrical Consumption - 072 Lakhs annum
After- Use of Integrated gun ( IT Gun)
Power Rating - 33 KVA
Electrical Consumption - 016 Lakhs annum
Installed 6 nos of IT Guns
Total Saving - 337 Lakhs KWH annum
Rs 1432 Lakhs annum
2 Installed Steffa Control valve for Optimum utilization of Chilled water in Central
AC Plant
Installed Steffa Control Valve for optimum utilization of chilled water
at Central Air Conditioning Plant
Saving - 3579 KWH annum
Rs 015 Lakhs annum
57
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
3 Conversion of Core baking over from Electrical to PNG in Foundry
Foundry Core Baking Oven which was running on Electrical firing
converted to PNG firing by installing fuel efficient burners
Before - Electrical Heating
Electrical Consumption ndash 345 Lakhs KWH
annum
Cost - Rs 1469 Lakhs annum
After - PNG Heating
Thermal Consumption ndash 106 Lakhs SCM annum
Cost - Rs 909 Lakhs annum
Saving - Rs 560 Lakhs annum
Chapter 673 Thermal saving amp Heat Recovery
1 Conversion of Thermopac from LDO to PNG with Heat Recovery
Before - Thermopac used for heating of Thermic Fluid
58
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
Previously was running on LDO
LDO Consumption ndash 415 Lts day
Cost of LDO ndash Rs 2517 Lakhs annum
After - Thermopac used for heating of Thermic fluid
Converted to PNG firing with Heat Recovery
System
PNG Consumption ndash 798 SCM day
Cost of PNG ndash Rs 2050 Lakhs annum
Saving - Rs 467 Lakhs annum
2 Heat pump using atmospheric heat for washing machines
Before - Use of 66 kw electrical heaters for water heating in washing
machine
After ndash Heat Pump using atmospheric heat to rise the temperature of
water from 32 ordm to 60 ordm for washing machine avoiding electrical heaters
Saving = 177 Lakhs KWH annum
= Rs 751 Lakhs annum
Chapter 674 Other projects implemented during 2004-2005
59
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
middot Variable frequency drive for Body top coat Exhaust blower in paint shop
middot Automatic power factor controllers
middot Continuous to intermittent motors by modifying the circuits or using Programmable Logic Controls
middot Online Diesel dispenser system
middot Stopping idle running of motors
middot Higher HP Motor to Lower HP Motor
middot Automatic Star Delta Converter
middot Flat belts instead of lsquo V lsquo belts for blowers
middot Boosters for High Pressure Compressed Air in machine shop
middot Use direct heating avoiding indirect heating
middot Effective Insulation for Paint Shop Ovens
middot Air pressure regulators
middot Recycling amp Reuse of Waste Material
middot Turbine Air Ventilation System
middot Building Management system for effective air conditioning
Chapter 675 Energy Conservation Plans and Targets
Energy Conservation Measures Anticipated (planned)
Anticipated savings In
Energy (Rs lakhs)
Approx Project
Investment (Rs Lakh)
Project commencement
amp completion year
Centralization of compressor house at utility compressor house 25 75 2004Fuel Cells for Power amp Heat generation 104 650 2004Install waste heat recovery for CGC 2 furnace and preheat quench oil 772 10 2004Replacing open type Burners by close typeburners at SAC Furnace 285 45 2004Heat pump for washing machine 8 15 2004Vapour Absorption System for air conditioningin Transmission PU 42 21 2005
60
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
Variable Frequency Drives for Gray PrimerBooth Exhaust Blowers in Paint Shop 10 628 2005Solar Water heating system for washing machine 10 175 2005
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
61
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
Chapter 7 SWOT Analysis of Cost Reduction Techniques in
Automobile
Overview on the automotive sector
The automotive industry is torn between trying to reduce costs on the one hand and on the
other dealing with the high price of performance-enhancing technology and environmental
compliance Key drivers in the automotive industry are
middot Reduced air pollution
middot Reduction of weight
middot Recyclability
middot Safety
middot Better performance and engine efficiency (fuel saving)
middot Aesthetics
middot Longer service life
62
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
SWOT analysis on the automotive sector
II1 Frames and body
(1) Nanomaterials presently industrially used
Concerning the materials used for frames and body polymer nanocomposites play an
essential role
Engines and powertrain
The new development in engine and powertrain technologies has the objectives to improve
thermal and mechanical efficiency performance drivability and reliability as well as to reduce
emissions and costs
63
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
Paints and coatings
(1) Nanomaterials presently industrially used
o Properties of traditional materials change and the behaviour of surfaces start to dominate the behaviour of bulk
materials Such effects include ultraviolet (UV) blocking anti-static and conductive capabilities Paints and
coatings industries were among the first to take advantage of these capabilities three years ago Companies also
found that with the incorporation of nanoparticles thin film coatings have stronger bonds and better flexibility
with little cost differences These coatings are smoother stronger and more durable When used on products the
results range from scratch-resistant and self-cleaning surfaces to moisture-absorbing clothing Many companies
from around the world are using the properties of nanoparticles and are incorporating them within their coatings
Lubrication
(1) Nanomaterials presently industrially used
o Nanotechnology-based solid lubricants reduce friction between moving parts and minimise wear save
maintenance costs and greatly improve overall machine performance In addition it reduces energy consumption
and decreases air pollution
Suspension and breaking systems
(1) Nanomaterials presently industrially usedo Suspension systems Injecting nano iron-based particles into certain fluids creates a magnetic field that changes the viscosity from a thin liquid to a solidhis allows a vehicle to instantly alter its suspension system based on theconditions it senses
Tires
(1) Nanomaterials presently industrially usedo Replacement of carbon black in tyres with nanoparticles of inorganic claysand polymers leading to tyres that are environmentally friendly and wearresistanto New nano coating reduce weight improve pressure retention and reducerecycling and incineration costso Nanostructured soot as an additive to increase tire life reduce friction and fuelconsumptiono In the past few years European elastomer and inorganic oxide producers haveteamed to produce using an empirical approach the green tire which isbased on nano-structured silica reinforced hydrocarbon elastomers
64
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
Chapter 8 Recommendation
65
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
Chapter 8 Recommendations
The automobile components industry is composed of Tier 1 manufacturers positioned directly below the
automobile manufacturers and Tier 2 manufacturers and lower that are positioned beneath the Tier 1 producers
forming business relationships in the shape of a broad-based pyramid with automobile manufacturers at the top It
is common for Japanese automobile component manufacturers to be so-called keiretsu producers which have
strong business ties with a specific automobile manufacturer
The business performance of the automobile component manufacturers is strong but RampI cannot be
optimistic about the future business environment Amidst increasingly intense global competition between
automobile manufacturers the performance of the automobile manufacturers which are the main customers has
a significant influence on the performance of components manufacturers In addition with earnings for
automobile manufacturers themselves being squeezed by the intensification of competition the demands made
on component manufacturers in terms of price have become even more stringent Moreover adding in the
current rise in the price of raw materials such as steel aluminum and copper and it seems that earnings are being
squeezed from both upstream and downstream directions
In this tough business environment RampI considers that the presence of a financial base that can
accommodate strategic investment will have a major impact on future creditworthiness for components
companies
Rating Points for the Automobile Components Industry
Evaluation of Business Base
In evaluating the business base for the automobile components industry RampI focuses on three areas which
are the relationship with the automobile companies that are the major customers the structure for global supply of
products and the importance of the products
Sales for components manufacturers are significantly affected by how many models they can obtain orders
for at the launch of new vehicles or model changes and how sales go for each of the models for which they
receive orders Global production and sales of new cars is rising overall but there are major disparities between
individual manufacturers Therefore it is necessary to analyze structure of sales and trends for each automobile
manufacturer and assess the possibility of changes in future sales while considering external factors such as the
track record and future projections of each automobile manufacturer in the launch of new models and the effect
66
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
of environmental restrictions Automobile manufacturers have so-called close component manufacturers typified
by Toyota-affiliated Denso and Aisin Seiki Being a close manufacturers does not necessarily guarantee orders
Nevertheless the close manufacturers ultimately have a high share of deliveries business volume is often stable
and future order risk is limited to some extent However there are also fields in which independent manufacturers
have an overwhelming share depending on the product and it can be considered that order risk is also small for
independent manufacturers in these cases
With the move of automobile manufacturers toward a global base structure component manufacturers
have also been aggressively promoting the establishment and expansion of production centers overseas Catering
to the global strategy and global optimal procurement of automobile manufacturers is essential to maintain and
expand orders in the future and it is important to assess the state of the global structure for the supply of products
of the components manufacturers
The importance of the products that a company handles is also an key point As the stringency of demands
from automobile producers ruses major disparities in profitability for each component have started to appear
depending on factors such as the added value of a product or differences in efforts to improve costs in production
It is important to forecast future profitability taking into consideration the nature of the product its importance in
an automobile overall as a part and future technological directions
Chapter 81 Main Indicators
1048706 Net debtoperating cash flow ratio Net debt
1048706 Operating cash flow capital expenditure
1048706 Equity capital equity capital ratio
1048706 Operating profit on sales RampD expenditure on sales ratio
1048706 Sales and operating income (loss) by region proportion of overseas sales
1048706 Share of main products (global for customer)
1048706 Production and sales of major customers
Chapter 82 Focus on Moves to Strengthen Ties with
Automobile Manufacturers
In order to survive global competition some Japanese automobile manufacturers are trying to boost
67
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
product strength by forging extremely close ties with highly competitive component manufacturers The role
played by component manufacturers in the development of new models primarily in such fields as the
environment safety and comfort is becoming increasingly important and there are instances of automobile
manufacturers moving to boost ties including on the capital front with competitive component manufacturers
RampI is following the impact that this trend is having on the competitive environment between automobile
component manufacturers
Chapter 83 Investment Margin is Key to Survival
Ability to generate cash flow is the most important factor In response to production increases by
automobile manufacturers each of the component producers have also stepped up capital expenditure primarily
to boost capacity both in Japan and overseas However the sharp increase in capital expenditure has been a heavy
burden on finances in the automobile components industry which has many companies that are small in scale
compared to automobile producers and that compare unfavorably in terms of financial base In order to
implement strategic investment including rationalization maintenance and innovation and initial investment in
addition to establishing centers in growth markets it is necessary to secure stable cash flow in excess of a certain
amount every fiscal year and this could be termed a condition for survival
Chapter 84 Focus on Adequacy of Equity Capital
Sales credit and inventory risk is relatively small for component manufacturers With the exception of
some open market sales the majority of sales credit is for automobile manufacturers and the risk of bad debts is
low when limited to Japanese automobile producers Moreover compared to other industries sales credit
collection period is often short and its terms are also favorable Inventory is ordered production for automobile
manufacturers so RampI considers the risk of abolition and impairment to be extremely small
RampI also considers that equity capital as a risk buffer is an important factor RampI assesses effective equity
capital taking off balance sheet debt into account as a risk buffer for accommodating asset impairment risk and
extraordinary losses Nevertheless the level of risk buffer required varies depending on the business risk of
individual companies If the customer is a manufacturer that is continuing to increase production the risk that the
component manufacturer will abolish facilities is extremely small However when the customer is a
68
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
manufacturer that is carrying out large-scale restructuring it is necessary to consider the effect of the restructuring
plans on the rate of operations at the components manufacturer and to examine the risk of abolition of production
facilities and the adequacy of equity capital
69
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
Chapter 9 Bibliography
70
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
BIBLIOGRAPHY
Chew W B T F Bresnahan and KB Clark 1990 ldquoMeasurement Coordination and Learning in a
Multiplant Networkrdquo in R S Kaplan ed Measures for Manufacturing Excellence Harvard Business
School Press Boston
Chew W B D Leonard-Barton and R E Bohn 1991 ldquoBeating Murphyrsquos Lawrdquo Sloan Management
Review Spring pp 5-16
Cusumano M A 1985 The Japanese Automobile Industry Technology amp Management at Nissan and
Toyota Harvard University Press Cambridge
Daiwa Securities Research Institute annual issues Analystrsquos Guide Tokyo Japan
Fujimoto T and A Takeishi 1994 ldquoAn International Comparison of Productivity and Product
Development Performance in the Automotive Industryrdquo in R Minami etal Acquisition Adaptation and
Development of Technologies Macmillan
Geweke J R Meese and W Dent 1983 ldquoComparing Alternative Tests of Causality in Temporal
Systemsrdquo Journal of Econometrics (21) pp 161-194
Granger C W J 1969 ldquoInvestigating Causal Relations by Econometric Methods and Cross-Spectral
Methodsrdquo Econometrica 34(4) July pp 424-438
Hall R W 1983 Zero Inventories Homewood IL Dow Jones-Irwin
Im J H and S M Lee 1989 ldquoImplementation of Just-in-Time Systems in US Manufacturing Firmsrdquo
International Journal of Operations and Production Management 9(1) pp 5-14
Jorgenson D W and M Kuroda 1992 ldquoProductivity and International Competitiveness in Japan and the
United States 1960-1985rdquo Economic Studies Quarterly 43 December pp 313-325
Lieberman M B 1990 ldquoInventory Reduction and Productivity Growth A Study of Japanese
Automobile Producersrdquo In Manufacturing Strategy J E Ettlie M C Burstein and A Feigenbaum eds
Kluwer Academic Publishers Boston
Lieberman M B Demeester L and R Rivas 1995 ldquoInventory Reduction in the Japanese Automotive
Sector 1965-1991rdquo mimeo
Monden Y 1981 ldquoWhat Makes the Toyota Production System Really Tickrdquo Industrial Engineering
(January) pp 36-46
71
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
Chapter 10 References
72
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
Chapter 10 REFERENCES
httpwwwintelligencom
httpwwwbitpipecomrlisttermManufacturing-Industryhtml
httpscitationaiporggetabsservletGetabsServletprog =
httpwwwwww-manufacturingcentercommanufacturing-industrieshtml
httpwwwrfidjournalcomindustrysummitsmanufacturingphp
wwweInventoryControlinfo
wwwtraining-classescomcourse_hierarchycourses8567_ cost _ reduction _ techniques
wwwricsorgQuantitysurveyingQuantitysurveyors30_percent_real_ cost
wwwalmmccomUserResourceCtrMfg Cost Reducthtm
wwwstrategisicgccasam
wwwhalf cost productscomoutsourcinghtm
wwwiimmorgknowledge_bank12_ cost - reduction -through-improvement-in-productivityhtm
wwwcordiseuropaeuespritsrctcsfmws
www dmozorgBusinessIndustrial_Goods_and_ServicesConsulting
wwwrapid-response-consultingcomrst-qoihtml
JOURNALS
The Relationship Between Firm Growth Size and Age Estimates for 100
Manufacturing Industries
The Journal Of Industrial Economics Volume XXXV June 1987 0022-1821
Research for a ldquonew age of magnesiumrdquo in the automotive industry By H Friedrich and S
Schumann
Journal of Materials Processing Technology
Volume 117 Issue 3 23 November 2001 Pages 276-281
Comparison of Construction Alternatives Using Matched Simulation Experiments J Constr Engrg
and Mgmt Volume 122 Issue 3 pp 231-241 (SeptemberOctober 1996)
73
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
Chapter 11 Annexure
74
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
Chapter 11 Annexure
Annexure A
Segment Key Players
Commercial Vehicles Tata Motors Ashok Leyland Swaraj Mazda Mahindra amp Mahindra
Bajaj Tempo Eicher Motors
Passenger Vehicles Tata Motors Maruti Udyog Honda MotorsHyundai Motors Toyota Skoda Mahindra amp
Mahindra Daimler Chrysler Hindustan Motors
Two Wheelers Hero Honda Honda Motors Bajaj Auto TVS Motors
Yamaha Kinetic Engineering
Three Wheelers Bajaj Auto Piaggio India
Annexure B Competitive Advantages
India has several competitive advantages in the automobile sectorwhich have been analysed using the following
frameworkAvailability of skilled manpower with engineering and design capabilities India has a growing
workforce that is English-speaking highly skilled and trained in designing and machining skills required by
the automotive and engineering industries In a combined assessment of manpower availability and capabilities
India ranks much ahead of other competing economies
Many Indian and global players are leveraging this advantage by increasingly outsourcing activities like design
and RampD to their Indian arms The Society of Indian Automobile manufacturers (SIAM) estimates that
automotive vehicle manufacturers are expected to invest US$ 57 billion in the Indian market from 2005 to 2010
Of this about US$ 23 billion will be on research and development and the rest probably on capex Some
examples of investment in areas leveraging the engineering and design capabilities of India include
75
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-
bull MICO the Indian operation of Bosch and a key player in fuel injection equipment ignition systems and
electricals has invested in the MICO Application Centre (MAC) for RampD It has emerged as a key global RampD
competency centrecatering to the entire Bosch Group It is the first of its kind in India and the Bosch Grouprsquos first
outside Europe
bull GM set up a technical centre at Bangalore that became fully operational in September 2003 The centre focuses
on both RampD and engineering and takes up high-value work to complement current research programmes as
well as new exploratory research projects
76
- c Scholarly articles for brief about indian manufacturing industries
- Chapter 64 LEVERAGING THE SUPPLY CHAIN
-