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The TATA Motors - Value Chain

Inbound Logistics

Logistics is a critical part of any manufacturing company. The underlying

cost structure of the company is very much determined by its ability toprocure quality ra materials at lo prices and rationalise the overallproduct costs. !or the purpose of analysis on overall pro"tability e illanalyse some of the important value chain activities.

a# Vendor Council

$tarted in %&&'( as a one o) event to settle payment disputes ith thesuppliers( TATA Motors has established a Vendor Council for the purpose of *no ledge sharing bet een TATA Motors and its suppliers. Vendor Councilhas top management of the company as ell as representatives from thema+or supplier groups as its members. Moving for ard from its primaryrole of dispute resolutions it no focuses on four critical aspects of supplier engagement, quality( e ciency( relationship and ne technologydevelopment. Thus( it emulated a model successfully used by other ma+orauto companied including Maruti $u u*i and /a+a+ Auto.

Many analysts feel that in the short term such a council ill help thecompany in better production planning by avoiding supplier problemssuch as large inventory. In the longer term( it ill ultimately lead to cost

reduction by rationali ing production.b# Vendor 0ar*s

The company has established vendor par*s at its production facilities in0antnagar12ttara*hand# and $anand13u+arat#. $ome of the ma+orsuppliers such as /osch hich manufacture *ey components for its carshave been co-located ith the production facility.

$uch clusters ill help in real-time component supplies at its facilities.Also( it ill help in reducing logistics and inventory costs as ell as

reducing the e)ect of long-distance supply chain. Thus( leading to overallcost reduction for both TATA Motors and its suppliers.

c# TATA AutoComp $ystems1TAC4#

A subsidiary of TATA Motors( established to ensure supplies of strategiccomponents required by the company. A ma+ority of components aresupplied to the company by TAC4. It also encourages entry of foreignautomotive component manufacturers by means of forming +oint venture

ith them.

This helps ensures supply of essential components at the best quality andlow price .

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4ther than the above three( some other activities include(

d# Long-term contracts ith suppliers, TATA Motors has a rene al policyafter every 5& years. $o( essentially such long term contracts forcritical components such as transmission and engines help TATAMotors in reducing the e)ect of 6uctuating prices of commodities.

e# Imports from lo -cost countries, TATA Motors ta*e advantage of loprices in foreign mar*ets by sourcing some supplies such as specialsteels( heel rims and po er steering assemblies from such countries.

f# 7-sourcing ith reverse auctionsg# 2sing third party logistics providers, This resulted in space and cost

savings.

4perations

/eing an established player in the Commercial Vehicle segment( TATAMotors had advantages hile entering the 0assenger Vehicles segment in5''&s.

TAL Manufacturing $olutions has a 8& year e9perience in automotivemachinery and related equipment. This gave them advantages hileentering the segment by( for e9ample manufacturing India:s "rstindigenous car the Indica. In this case its 8& year experience curvehelped TATA Motors to cut costs in capital investment in machinery. Also(platform sharing allo s the company to leverage its technological and

manufacturing facilities across its commercial and passenger vehiclebusinesses. !or e9ample( platform sharing for utility vehicles and pic*uptruc*s allo ed for increase in utili ation. Thus( reducing overhead costs.

TATA Motors too* an early decision to invest in time (and cost) -savingautomated production lines hen it decided to invest in mostly automatedline for its 0une plant. These industrial robots installed increased thesafety level for the plant by doing more di cult +obs. Also( production too*a big leap ith the ne production line averaging around '&& cars a day.

This automation also removes reliance on contract labour for these +obs.

Thus reducing manpower costs .

TATA Motors has adopted Value 7ngineering and Value Analysis to reducematerial consumption and therefore reducing costs . This *no ledge hasbeen shared ith the supplier to reduce overall costs of componentssourced. Apart from this( implementing best practices of ;ai en and T0M1Total 0roductive Maintenance# the company has been able to reduceinstances of brea*do n( and increased productivity.

!inally( Tata Motors is betting big on Advanced Modular 0latform 1AM0#

hich ill essentially allo the carma*er to share parts and productionfacilities resulting in huge savings for the company. This ill also allo

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the carma*er to provide ne features on all its cars besides allo ing forfaster product development. Thus( increasing the willingness to pay(WTP).

4utbound Logistics

Li*e most other players in Commercial Vehicle segment TATA too has itso n distribution company( TML <istribution Company. This subsidiary alsois responsible for transport of passenger vehicles( though both 1passengerand commercial# operate on di)erent models.

Logistics cost are one of the ma+or cost additions for any automobilemanufacturer. !or passenger vehicles( TML< adopts a mil*-run deliverymodel 1especially for rural areas#. Most orders are billed directly at thefactory and transported to the dealer. 4ther orders are moved through

=transit arehouses: to the dealers via the mil*-run route. This modelallo s the company to minimize lead time ( and also results in costsavings from high utili ation rates of transport trailers. Also( minimi esinventory levels and thus additional cost savings in the form of inventorycosts .

A trac*-trace system has been developed( named 0ortal( to monitorvehicle movement thorough out from factory to the dealer. The data fromthe system is available in a dashboard vie to all the sta*eholders in thesupply chain. Thus( dealers can *no e9act delivery times( disruptions 1if any# etc. and thus plan accordingly. This initiative again results inefcient delivery process and indirectly helps maintain a high level of customer satisfaction 1in terms of no. of orders ful"lled#.

Also( the presence of =transit arehouses: by Tata Motors has helpedincrease the operational e ciency and reduce physical inventory at thedealerships. Thus( orders can be serviced on a short notice.

Tata Motors has also ta*en a strategic decision to use rail transport toreach the commercial centres. >ith government incentivising the freight

transport by rail( the sector is set to contribute up to %&? of total automovement by %&%&. @ail ays orld ide are *no n for reduced transittimes and damages.

!inally( to cater to increasing rural demand Tata Motors has its ano-e9clusive stores operating on a lo inventory model and follo ing themil*-run mode for deliveries.

Mar*eting and $ales

Tata Motors has licensed the use of the BTATA brand name from itspromoter( Tata $ons Limited. Tata has been one of the most *no n brands

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1especially in the "eld of engineering#. /an*ing on its brand name TataMotors does have a higher illingness to pay 1 WTP # than a ne entrant.

Tata Motors already have the D rd largest dealer net or* in India. !urther( itplans to triple its dealerEsales net or* in ne9t four years. Most of the focus

ould be again on the rural mar*ets here TATA is still a big brand name(than*s to Tata Motors commercial vehicles. It is hypothesised that in ruralmar*ets illingness to pay ould higher than in saturated urban mar*ets.

Leading its mar*eting e)orts and to compete ith other global brands( TataMotors recently also hired Lionel Messi as its brand ambassador. This helpsto give the brand a Bcool quotient and higher WTP among younger

or*force. In the past( Tata Motors has also relied on mar*eting usingsponsoring teams such as ;ings FI 0un+ab 1I0L#( @oyal Challengers 0un+ab1I0L# and 2 Mamba 10ro ;abaddi League#.

Tata Motors follo s the Tata /usiness 79cellence Model 1T/7M# hose oneof the important principles is using parametric tools such as G!< to assessconsumer needs. The resulting need-set generated helps develop productsaccording to needs and aspirations of the target segment. Thus( a higherWTP from that segment.

After-$ales $ervice

!rom a consumer vie -point( after-sales service is the critical factor for

selecting a carma*er. The service net or* is essentially an augmentedbene"t hen buying a car.

Tata Motors is trying to better their service net or* in India hich is atpresent second after M$IL 1Maruti $u u*i#. A ne strategy under the name=Horizon e!T" has been put in place to this e)ect. Tata Motorsdealership subsidiary( Concorde Motors( ill lead in this regard inimplementing the strategy.

Three core-customer desired services promise, responsive( reliable andbest value. Thus( doorstep service( online service( rapid repair( e9tended

arranty and others ere made available to the users. This ill have ane)ect of increasing willingness to pay (WTP) for Tata Motors: car.

Also( Tata Motors has started a dealership certi"cation program( <elivering<elight( hich is aimed at enhancing service quality at the dealerships.Again( leading to increasing WTP .

$upport !unctions

4ne of the important pillars of Tata Motors business strategy is signi"cant

investment in @esearch and <evelopment for developing ne productbased on customer requirements. In %&5H( Tata Motors as actually the

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only Indian "rm in the global top H& in terms of investments in @ < areconcerned.

Traditionally( Tata lac*ed research in design capabilities hich it acquiredthrough an acquisition of Trili9 1an Italy based <esign company#. Theresults can be seen in the fact that Tata Motors is planning to unveil asmany as %H products at the %&5J Auto 79po. And most of these vehicles

ill feature the use of =$mart Technology: and =$mart 0roducts:. Thesecustomers ill naturally have a higher WTP for these cars .

4n the K@ front( Tata Motors has policies li*e ITeach here in pro+ectmanagers ta*e o nership for sharing *no ledge and e9perience. Thisbesides allo ing for sharing of tacit *no ledge and developing leadershipalso reduces cost in third-party training by the company. Also( TataMotors has ta*en initiative to become a more gender diverse or*force bystarting a referral scheme =!riend : herein the employee is re ardedfor referring a female candidate.

!inally( Tata Motors have developed Learning Advisory Councils 1LACs#hich conduct training program online( reducing costs . Tata 3roup as ahole believes in &,%&,5&( i.e.( &? training on the "eld( %&? by

coachingEmentoring and 5&? in-classroom training.

on-Mar*et Analysis

In analysing the e)ect of non-mar*et forces on pro"tability of Tata Motorse ill be using the 8I frame or* of issues( interests( institutions andinformation.

• The "rst ma+or issue is of 7mission $tandards. >ith rene ed focus onemission standards in the a*e of Vol*s agen case( this issue hasta*en centre stage among di)erent interest groups. !rom 34s li*e3reenpeace to 3overnment regulatory bodies to the end-customereveryone has an interest in this issue. The 3overnment of India( andMinistry of 7nvironment and !orests is *een on preponing the Auto

!uel 0olicy to directly /$ VI levels bypassing /$ V by %&%&. This illhave ma+or impact on all automobile manufacturers in particular and

Tata Motors in particular 1ne investment needs to be made todevelop compliant vehicles#. To counter it( automobile manufacturersunder $IAM 1$ociety of Automobile Manufacturers# had lobbied for ane9tension. /ut along ith that Tata Motors as developing C 3versions of its vehicles and more hybrid vehicles to counter anynegative impact on pro"tability.

• Contract labour has been a perennial problem in the automobile

industry. It has led to disastrous consequences such as shutdo n of Maruti $u u*i plant at Manesar and resulting daily loss of around H

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crores. Tata Motors too has around J&? of its or*force =temporary:.Main interest groups include labour unions such as CIT2( AIT2C etc.(

hich hold a considerable s ay among or*ers( and also thegovernment thorough the labour department. To counter negative

e)ects of labour unions Tata Motors has started many schemesincluding a nation ide s*ill development program in association ithettur Technical Training !oundation 1 TT!# under the ational

7mployability 7nhancement Mission 1 77M#. >ith this Tata Motorsgives fully sponsored on-the-+ob training for local communities fort o full years. After the program the candidates can then apply for

+obs both ithin Tata Motors and also else here in the industry.• !inally the ta9ation also plays a role in shaping auto policy of the

future. Automobile manufacturers and end-customers are bothimpacted by ta9ation policy of the government. !or e9ample in %&&Nthe e9cise-duty incentives for the sub-8 metre cars virtually createda hole ne segment named Compact $edan. This as( in fact(pioneered by Tata Motors ith its launch of Tata Indigo C$. $imilarly(

ith increasing government incentives for greener cars Tata isdeveloping its o n range of green vehicles ith reduced C4 %

emissions and light aluminium body 1reduced eight and fuelconsumption#.

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