Executive SummarySupply chain management has been defined as the "design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand and measuring performance globally. The automobile industry is a pillar of the global economy, a main driver of macro-economic growth and stability and technological advancement in both developing and developed countries, spanning many adjacent industries. In this project, we have taken India’s leading automobile manufacturer, Tata Motors Limited (TML) for analysing Supply Chain Management in Automobile Industry and found out the following. Tata Motors Limited products are sold and serviced through a network of authorized dealers and service centers across the domestic market, and a network of distributors and local dealers in international markets. The company monitors the performance of its dealers and distributors and provides them with support to enable them to perform to the expectations. Any under-performance by the dealers or distributors could adversely affect TML’s sales and results of operations. The company relies on third parties to supply raw materials, parts and components used in the manufacture of products. Furthermore, for some of these parts and components, the company is dependent on a single source. The company’s ability to procure supplies in a cost effective and timely manner is subject to various factors, some of which are not within its control. While the company manages its supply chain as part of the vendor management process, any significant problems with supply chain in the future could affect the results of operations. Impact of natural disasters and man-made accidents, adverse economic conditions, decline in automobile demand, lack of access to sufficient financing arrangements, could have a negative financial impact on the Company’s suppliers and distributors, in turn impairing timely availability of components, or increases in costs of components. In managing a complex supply chain, the Company has developed close relationships with both direct and indirect suppliers. The Company continues to develop long-term strategic relationships with suppliers to support the development of parts, technology and production facilities Contents EXECUTIVE SUMMARY.........................................................................2 INDUSTRY OVERVIEW..........................................................................4 KEY STATISTICS....................................................................................................... 4 EVOLUTION OF INDIAN AUTOMOBILE SECTOR................................................................6 MAJOR MARKET PLAYERS.......................................................................................... 6 GROWTH DRIVERS................................................................................................... 8 TATA MOTOR - COMPANY BACKGROUND...............................................9 SUPPLIERS & OEM MANUFACTURES..................................................10 PROVISIONS RELATING TO SUPPLY OF PRODUCTS.........................................................10 PRICES................................................................................................................ 10 PAYMENT TERMS................................................................................................... 11 LOCAL FACILITY.................................................................................................... 11 SERVICE AND REPLACEMENT PARTS, SPARES PARTS AND SERVICE SUPPORT......................11 PRODUCT SPECIFICATIONS....................................................................................... 12 FORECAST AND ORDERS......................................................................................... 12 PACKING AND TRANSPORT....................................................................................... 12 DELIVERY CLAUSES................................................................................................ 12 PROCESS FLOW CHARTS....................................................................13 SUPPLY CHAIN FLOW: INWARDING TO DISPATCH..........................................................13 SUPPLY CHAIN FLOW: PROCUREMENT TO PAYMENT......................................................13 ENTERPRISE RESOURCE PLANNING............................................................................14 VALUE CHAIN....................................................................................15 INBOUND LOGISTIC................................................................................................ 16 OPERATIONS......................................................................................................... 16 OUTBOUND LOGISTIC............................................................................................. 16 MARKETING & SALES............................................................................................. 16 SERVICE.............................................................................................................. 17 PROCUREMENT..................................................................................................... 17 TECHNOLOGY & DEVELOPMENT................................................................................ 17 HUMAN RESOURCE................................................................................................ 17 SUPPLY CHAIN..................................................................................18 IMPLICATION OF SUPPLY CHAIN MANAGEMENT – WORLD MARKET.....................................18 ENVIRONMENT OF SUPPLY CHAIN – TATA MOTORS LTD.................................................19 DRIVERS OF SUPPLY CHAIN..................................................................................... 20 CASE STUDY.....................................................................................23 REGULATIONS...................................................................................24 REWARDS AND RECOGNITION............................................................25 REFERENCES....................................................................................26 Supply Chain Management – Tata Motors Limited 2 Industry Overview Automotives contributes to several important dimensions of nation building right from generation of government revenue to creating economic development and encouraging people development along with fostering research and development and innovation. Automobiles depend heavily on consumer trends and tastes. The large pool of skilled manpower and growing technology poses heavy demand for automobiles in India which will list our country one amongst the top five auto producers by the year 2015. The liberalization of the Indian industry saw significant growth in the Indian Automotive Industry. Today, the Indian Automotive Industry is a significant contributor to the Indian economy, contributing nearly 5% to the country’s GDP and about 17-18% to the kitty of indirect taxes to the Government. Income and the cost of ownership are the two factors which are majorly affecting the demand for the automobiles. With its wide penetration and strong influence on the country’s economic and industrial development, the auto sector is indeed one of the major drivers of our economy. Moreover, economic liberalization coupled with its technological, cost and manpower advantage has made India one of the prime business destinations for many global automotive players. The sector has moderate direct employment and significant indirect employment; it is estimated that the sector provides direct and indirect employment to over 13 million people. With many new launches in the luxury and premium carmakers segment, the Indian market condition plays a catalyst role in the growth of the industry. The top-end carmakers have posted double-digit growth for the quarter ended June 30, 2013, with firms like Honda at 45 per cent and Audi recording higher sales and revenue growth of about 26 to 28 percent in this quarter itself. India is emerging as an export hub for sports utility vehicles (SUVs). Global automobile majors are looking to leverage India's cost-competitive manufacturing practices and are assessing opportunities to export SUVs to Europe, South Africa and Southeast Asia too. India is also one of the key markets for hybrid and electric medium-heavy-duty trucks and buses. Key Statistics The Indian automobile industry produced a total 1.69 million vehicles including passenger vehicles, commercial vehicles, three wheelers and two wheelers in August 2013 as against 1.56 million in August 2012, registering a growth of 8.18 percent over the same month last year. The cumulative foreign direct investment (FDI) inflow into the Indian automobile industry during April 2000 to July 2013 was recorded at US$ 8,932 million, amounting to 4.5 per cent of the total FDI inflows (in terms of US$), as per data published by Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce. The overall automobile exports grew by 2.03 per cent during April-August 2013. Furthermore, the production of passenger vehicles in India was recorded at 3.23 Supply Chain Management – Tata Motors Limited 3 The key points for this forecast is – Auto sales across categories are estimated to rise 6-8 per cent in FY14 Passenger vehicles are projected to grow 5-7 per cent in FY14 • Passenger car segment is estimated to expand 3-5 per cent • SUVs are projected to increase 11-13 per cent Commercial vehicles are forecast to rise 7-9 per cent • LCVs are estimated to grow 10-12 per cent MCVs and HCVs are projected to increase 1-3 per cent Three wheelers are estimated to rise 3-5 per cent in FY14 Two-wheelers are expected to grow 6-8 per cent in FY14 Growth Forecast for Sales 30% 25% 20% 15% 27% 26% 10% 12% 5% 0% 4% FY09 4 8% 3% FY10 FY11 FY12 FY13 Supply Chain Management – Tata Motors Limited FY14E . As per the SIAM’s (Society of Indian Automobiles Manufactures) report. Automobiles production increased at a compound annual growth rate (CAGR) of 12.2 per cent over FY05-13. while the export volumes increased at a CAGR of 19. automobile sector is going to witness a strong growth in FY14.million in 2012-13.1 per cent. Growth Forecast for the Auto Segment 50% 33% 33% 33% 28% 25% 25% 20% Passenger Vehicle Commercial Vehicle 13% 5% FY09 0% 16% Wheelers Three 3% FY10 FY11 0% FY12 0% 2% 5% 3% FY13 -2% Two Wheelers 9% 7% 5%6% FY14E -30% Supply Chain Management – Tata Motors Limited 5 . Sector delicensed in 1993 .Seller's market .Setting up of national Automotive Board to act as faciltator between the government and industry Major Market Players Segments Indian Origin Foreign Origin Cars/ SUVs Hindustan Motors Mahindra & Mahindra Maruti Udyog Ltd Tata Motors Ltd Commercial Vehicles Ashok Leyland Swaraj Mazda Tata Mahindra & Mahindra Ford Hyundai Suzuki Honda Toyota GM Skoda Tatra Volvo Mitsubishi 6 Supply Chain Management – Tata Motors Limited .Import permitted from April 2001 .Joint venture : Indian government and Suzuki formed Maruti Udyog.Close market .07 1983 -92 Before 1982 .Major OEM started assembly operation in India .Buyer's market .More than 35 marktet players .Introduction of value added tax in 2005 .Indian companies gaining acceptance on global scale .Component manufacturers enter the market via JV .Removal of import control .Five Players . commenced production in 1983 .Evolution of Indian Automobile Sector 2007 onwards 1993 .Long waiting period and outdated models . M&HCV Force. 12% TATA. 53% M&M. 5% Ashok Leyland. 21% Sou rce: SIM. 22% Maruti Suzuki. December 2013 LCV.Cars & Utility Vehicles Other. 3% Others. 7% M&M. 5% TATA. 36% Toyota. 9% Hyundai. 24% Sou rce: SIM. December 2013 Supply Chain Management – Tata Motors Limited 7 . 3% Eicher. 8 Supply Chain Management – Tata Motors Limited . Growth drivers Companies can leverage India’s acknowledged leadership in IT industry More than 125 Fortune 500 (including large auto companies) have R&D centres in India Most leading component manufacturers are QS & ISO certified Continuing in economic reforms and policies related to investments Proven Product development capabilities Skilled labour costs amongst the lowest in India Competitive Manufacturi ng Costs 11 Indian component manufactures have won Deming Award Shipments to Europe cheaper than those from Brazil and Thailand Stable Economic Policies India n Auto Hub High Quality Standards Proximity to Markets Large & growing domestic demand Availability of Manpower Proximity to Asian economies & emerging markets like Africa Demand growth of 14% CAGR makes India one the fastest growing markets 0.4 million engineering graduates every year 7 million enter workforce every year Supply Chain Management – Tata Motors Limited 9 . Tata Motors is committed to improving the quality of life of communities by working on four thrust areas – employability. The Company’s manufacturing base in India is spread across Jamshedpur (Jharkhand).Tata Motor .Company Background Established in 1945. services and spare parts network comprises over 6. Lucknow (Uttar Pradesh). Tata Motors has operations in the UK. Spain.89. Tata Motors’ presence cuts across the length and breadth of India. acquired in 2008.629 cr INR 9. Over 8 million Tata vehicles ply on Indian roads. The Company’s dealership. since the first rolled out in 1954. Thailand. education. It is the leader in commercial vehicles and among the leaders in passenger vehicles in India with winning products in the compact. Pune (Maharashtra).334 589.893 cr Production Capability: Domestic and International Units produced Units Sold Commercial vehicle Passenger Vehicle 606. Pantnagar (Uttarakhand).983 580. Tata Motors Limited is India’s largest automobile company. health and environment.082 10 Supply Chain Management – Tata Motors Limited .274 cr INR 1. Highlights of the company (as a TATA Motor Group) in FY2012 -13 Market Capitalisation (as on 31st March 2013) Total revenue Consolidated Profit INR 79. South Korea. Sanand (Gujarat) and Dharwad (Karnataka). Tata Motors in 2005 was ranked among the top 10 corporations in India with an annual revenue exceeding INR 320 billion. Among them is Jaguar Land Rover.897 598. Through subsidiaries and associate companies. midsize car and utility vehicle segments. South Africa and Indonesia. sales. It is also the world’s fourth largest bus and fifth largest truck manufacturer.600 touch points. if any. tools or accessory equipment that were acquired from without payment obligation or fully paid by Tata Motors. based on the quotation and detailed cost break-up provided by the supplier and mutually agreed between Tata Motors and the supplier. quality. that may have been executed with the supplier. The items agreed to be sold and supplied by the supplier must be delivered at designated points within Tata Motors premises at various locations or any other location specified for Spare parts. Similar products or their packaging supplied by supplier to the third parties shall not bear any mark or reference of. Supply Chain Management – Tata Motors Limited 11 . of Tata Motors as detailed in various sections in this General Terms and Conditions. Prices Initial price for every item shall be settled between Tata Motors and the supplier. delivery. however. RFQ. reliability. subject to supplier meeting system specifications. Each shipment by the supplier must be made under separate invoice. models. Drawings. Supplier must not supply to any third party without prior written consent from Tata Motors. neither confers any legal rights on Tata Motors nor does it impose any legal liability on supplier. Supplier must extend the status of a very important global customer to Tata Motors and deal with Tata Motors as the supplier would deal with other similar customers. Exceptions. such as Purchase Agreement. price requirements etc. jigs. performance.Suppliers & OEM Manufactures Provisions relating to Supply of Products Tata Motors purchase Products from supplier. Supply Agreement etc. patterns. Such status. Purchase Orders and other agreements. Tata Motors Standards. The supplier needs to supply components in reusable containers. if the products in Purchase Order are manufactured using any of the following: • Any intellectual property rights of Tata Motors or its promoters. • Dies. either intellectual property rights of Tata Motors or the Promoters of Tata Motors. moulds. • Secret knowledge of manufacturing processes (know-how) of Tata Motors. will have to be informed to buying agency in advance and mutually agreed upon. Tata Motors then release Purchase Order on the supplier for the price thus settled. e. (ii) Commercial invoice. Together with Tata Motors. 12 Supply Chain Management – Tata Motors Limited . the supplier is expected to commit offsetting inflationary increases in costs through productivity gains and reducing cost further through value engineering. Any applicable development expense. and (iv) Certificate of Origin etc. The payment terms are generally against irrevocable letter of credit or cash against documents. such as Styling.. Validation. (iii) Packing list. due to Value Engineering exercises or changes in supply conditions or specifications shall normally be considered only once a year. tooling etc. by the respective purchasing agencies in Tata Motors. Imported Products: Payment will be made as per payment terms as mentioned in the Purchase Order. Payment Terms Local Products: Payment will be made as per payment terms as mentioned in the Purchase Order. unit rate applicable for serial production goods will also be applicable for all requirements on prototypes and for service and replacements. increased volumes of procurement from Tata Motors leading to lower Fixed cost per unit. Unless specifically agreed. which are approved by Tata Motors. Price revision effected for an item. performance and / or delivery requirements. 30 days after Goods Inward Notification.Unless agreed to specifically. effect of learning curve and by initiating other cost reduction measures. Integration. and Supplier agrees to bring down the prices as per the targets set from year to year with help of these measures. to improve quality. is settled with the Supplier considering the supplier delivers the product achieving the specified system level targets. the Tata Motors will carry out the consequential amendments in the Purchase Order. or at intervals mutually agreed upon. which are made in Indian Rupees for all procurements done in India. six sigma and Kaizen exercises. Payments shall be released within 30 working days from submission of documents such as (i) Bill of Lading/Airway bill. achievement of higher productivity. against documents such as (i) Lorry receipt / Rail receipt (ii) Commercial invoice (iii) Packing list etc. If there are changes in the said Product specifications. reliability. Engineering. any qualifying terms and conditions of the Supplier contained in their quotations / purchase order acceptance or any other form of communication shall not govern the business with Tata Motors. the impact will be reviewed jointly and if found appropriate. and is generally made within 30 days of satisfactory acceptance of Products at Tata Motors i. say 15 years. Product Specifications The products to be sold and supplied by the supplier to Tata Motors against the released Purchase Orders terms shall meet the specifications as finalised and agreed in writing between the supplier and Tata Motors hereto on completion of development work on the Product. Supply Chain Management – Tata Motors Limited 13 . supplier shall aggressively explore possibility of setting up facilities in the same country of Tata Motors’ ordering plant in the earliest possible time for which the supplier shall commit to a time-bound action plan for setting up a local production facility. is generally documented in the form of drawings. the agreed cost is always gross of the Withholding tax as applicable under Double Taxation Avoidance Treaty between India and supplier’s country of origin. During the final year of such period. catalogue. such as (but not limited to) parts. in its endeavour to remain price competitive. training manual and maintenance guide. The supplier for planning purposes only may use this forecast. For the development cost to be paid in foreign currency. Local Facility Supplier shall normally establish its manufacturing facilities near assembly location of Tata Motors with an objective of JIT supplies to Tata Motors. Spares Parts and Service Support At the request of Tata Motors during the period after Tata Motors complete current model purchases. Product specification. supplier shall make supplies to fulfill Tata Motors past model service and replacement requirements at the prices specified in a purchase order plus actual cost differentials for packaging and transport. In case the initial supplies are imported. Supplier is expected to participate in preparing this drawing jointly with Tata Motors. Forecast and Orders Actual purchase / supply of components shall be made against specific purchase orders. thus finalised. the Supplier and Tata Motors shall negotiate in good faith with regard to the Supplier’s continued manufacture of service and replacement supplies. supplier shall establish storage facility near the ordering plant of Tata Motors to provide uninterrupted and streamlined supply of materials. although the responsibility of approval and release of such drawings and specs sheets is solely with Tata Motors. Tata Motors provide an annual non-binding forecast to the supplier. workshop manual. Service and Replacement Parts. Supplier must provide such sale and after-sale service related information as mutually agreed by the parties. diagnostic equipment etc. In the event Supplier’s manufacturing location is not in the vicinity of Tata Motors’ ordering plant. The specifications can not be changed unilaterally by the supplier without prior written approval from Tata Motors. Supplier acknowledges that Volume Projections. Delivery Clauses Supplier must supply products as per Tata Motors schedules as indicated in Purchase Order or as communicated from time to time. product prices are inclusive of such marking fees. 14 Supply Chain Management – Tata Motors Limited . if any. color code etc) on each and every Product supplied. with specific quantities to be delivered at a time.Volume projection provided in by Tata Motors (including spare parts) is not a commitment by Tata Motors to purchase the quantities specified. Exceptions. Supplier is expected to agree on a specific logistics protocol with Tata Motors prior to commencement of production. like any other forward looking projections. time to time. Tata Motors issue monthly supply schedule. Unless agreed otherwise. Supplier shall provide a mutually agreed Unique Identification mark including location of Identification (such bar code. will have to be informed to buying agency in advance and mutually agreed upon. Packing and Transport For Local supplies. supplier shall supply components in reusable containers. which shall be as agreed upon jointly before start of serial production supply. After start of production of the Product. are based on a number of economic and business factors Initially Purchase order / Scheduling is released by Tata Motors like an open order. SHQ) VQA (Goods Inwarding) BMS (Payment by Bank) (Material Inspection) – Tata Motors Limited 15 Supply Chain Management .Process Flow Charts Supply Chain Flow: Inwarding to Dispatch VQA STORES CRDO (Acknowledgement) (Goods Inwarding) ASSEMBLY VEHICLE FINAL DELIVERY (Production) (Inspection) (Sales) Supply Chain Flow: Procurement to Payment SRM SCHEDULES (Supplier Relationship Mgmt) CRDO MRP SALES PLAN (Material Req Planning) (Corp. Enterprise Resource Planning Timelines Before 1999 1999 1999 – 2008 2008 onwards Legacy Systems Tata Motors Lucknow first to implement SAP 3. Governance Reduces costs thru increased flexibility & transparency Integrated & Real Time Data & MIS Statements Gains from Higher ROI Optimized IT expenses Reduce Risks thru SOX compliance & ERM Advantage of ERP Fully Integrated functional modules Bill-of-Material (BoM) linked Real-Time consumption Maintaining accurate Inventory levels at all stages Automated payments to all Channel Partners Process automation augmented by Bar-Codes.1H Largest single server implentation Upgraded to SAP ECC 6.0 ERP as a Catalyst to Growth Top to Bottom View of Company Performance Alignment of Strategies & Operations Improved Financial performance and Corp. RFID tech Executive MIS thru Business Warehouse Employee Self Service thru SAP HR SAP Module – Driving TML business 16 Supply Chain Management – Tata Motors Limited . Vehicle SAP. Transporters. The concept of value chain is developed from accounting practices which helps to analyse the value added to organisation at every stage of manufacturing or services or marketing. best in the products we deliver. TASS As per TML. marketing and sales. technology development and procurement. Contractors Strategic Alliances Regional Warehouses.178).000 employees are guided by the vision to be "best in the manner in which we operate. Human resource management. Value chain analysis makes possible for the organisation or management to find out activities which adding value to the organisation and activities that may destroy the value rather than creating and thereby helps to identify the source of competitive advantage. 2008. All this primary activities are carried out by use of support activities which are firm infrastructure. 1985 In Cowe.Value Chain Value chain analysis is much important for each organisation as its divide firm in to various distinct activities carry out by the organisation such as. Marketing Research Firms. marketing etc. Every single activity in value chain can contribute to firms relative cost position and create a basis for differentiation’ (Porter. operation. p. outbound logistics. designing. Convoy Drivers Association Dealer Network. (Cowe. Dealer Workshops. Primary activities change inputs (Inbound logistics. VCM Inbound Outbound Operations Logistics Marketing Service Logistics SAP. CRM DMS Suppliers. 2008) The value chain involves two types of activities: Primary activities & Support activities. manufacturing. Distributors. and best in our Supply Chain Management – Tata Motors Limited 17 . company's 24. service) into outputs and bring them to customer. Clear identification of product requirements. productive and cordial relationship and thus increase organisational capabilities in performing various primary activities such as operations. Efficient security system for prevention of any kind of pilferage. sales etc. leading to development of innovative products – Tata 207 DI. Along with all this HR Management carry out various activities for their staff which results in increased efficiency. Long-term contracts with transporters – higher volume of business to transporters ensures competitive price. Tata Ace Pan India presence and global footprint. Kaizen & TPM (total productive management) team – continuous drive to improve efficiencies. Operations Capital Equipment Manufacturing division – tooling development capabilities of global standard. Personnel at regional offices for overseeing the smooth transit of goods. Apprentice Trainee Course – ensuring stable source of skilled manpower. TML focus on development of. Inbound Logistic Long-term contract with service provider’s – transporters and agents. Transparency and monitoring through deployment of IT – all transactions through SAP. Thailand.value system and ethics. Automated manufacturing processes. all across the country. Efficient storage facilities – easy storage and retrieval. Brazil etc. They also carry out career advancement schemes. Outbound Logistic Stockyards. State Transport Units 18 Supply Chain Management – Tata Motors Limited . technical capabilities via training centres and association with technical institutes & management capabilities via training programmes at premier business schools. effectiveness. Marketing & Sales Structured approach to understanding the requirements of individual customers – QFD’s conducted at regular intervals. marketing." TML considers adding value process which can help to improve work progress and in general supply chain. Capacity Utilization – Mercedes Benz cars make use of Tata Motors paint shop facilities. Maintenance – technical competence. Regional Sales Office and Vehicle Dispatch Section linked through SAP. superior performance. Bangladesh. engagement. Distributed manufacturing – Assembly units at South Africa. Independent teams for addressing the requirements of institutional customers – Defense. DTL (daily transport logistics) supplies for critical high value items. Formal benchmarking process. Quick assessment of the changing market dynamics and consumer preferences – Tata 407 LCV Large network of dealers – use of technology (CRM-DMS). Efficient collection of data from field and communication to the respective plants. Tata Cummins Centralized Strategic Sourcing for key components – FIP’s. Pan India presence. in return Tata has access to Fiat’s technology and unutilized capacity. “Technology Day” organized across all plant locations. as well as global presence. Strategic partnerships – MDI (France).. Service Easy availability of spare parts. Technology & Development Approximately 2% of the annual profits of the company invested in research and development. executive training programs at premier business schools Career advancement schemes – ESS. Strategic subsidiaries & JV’s – TACO group of companies. a key destination for sourcing essential items like tires. Extensive prototype building and testing facilities. Training facilities – for dealer end and TASS personnel. Alliance with technical Institutes Focus on development of managerial capabilities – MTC’s. Localized supplier base at mfg. Fiat etc. Steel etc. Large network of workshops – Dealer workshops and TASS. Technology driven procurement – SAP and VCM. Helping to augment the scarce resources – Fiat selling vehicles through Tata dealerships. Procurement E procurement initiative. Focus on development of technical capabilities – Technical Training Center’s. Knowledge portal – helps employees keep abreast with the latest technologies. Global Sourcing Team – China. locations – low inventory levels. FTSS Supply Chain Management – Tata Motors Limited 19 . Steel procured from Belarus Long-term relationships with a stable and loyal pool of suppliers. Group resources – Tata Steel and Tata International. Human Resource Vast pool of technically competent engineers and managers. power steering units etc. TMTC. In fact. emission-level targets. These challenges hit an industry already plagued with high costs. following the path taken by the Japanese in the 1980s and the Koreans in the 1990s – both of whom went beyond their domestic market by focusing on the United States first. In this dynamics business environment. and accelerated competition. In fact. General macroeconomic and financial circumstances are not necessarily favorable. The most complex challenges automakers faces are summarized: 20 Supply Chain Management – Tata Motors Limited .Supply Chain Implication of supply chain management – World Market Recent emphasis on global climate change is increasing pressure on automobile executives to make the right decisions in many areas. low profit margins. layout. many of trends in the auto industry are reinforcing the need to redefine supply chain strategies. and operations. threaten the entire structure of the auto industry. The cost of energy and raw material continues to increase due to rising global demand. currently in question. and then Europe later. New entrants from China and India are working aggressively to capture the share of the global market. a superior supply chain is one critical element to helping automakers differentiates themselves from the competition. including R&D and manufacturing. Strong fluctuation in exchange and interest rate pose another challenge and are difficult and costly against which to hedge. Further. 2012 Based on these challenges.External Customer • Legislation (environment. Partnerships. eight major trends affecting the automotive supply chain Demand – side trend Supply – side trend Uneven growth Fragmentation Accelerated volatility Importance after market Differentiated outsourcing Low – cost country sourcing Risk Management Transparency/ accountability Figure: trends that have implication on supply chain Source: IBSG. • Segmentation and polarization (low cost vs. new entrants) • Global overcapacity • Complex alliances. After which specific nodal agency is responsible for development of parts and aggregates till the product is brought to the level of regular procurement. premium) • Decreasing loyality Competition Industry • Quickly entering into every segment • Moving targets everyone optimising or restructuring. Strategically important sources with a potential of developing relationship into strategic alliances are finalised during this step. 2012 Environment of Supply chain – Tata Motors Ltd Sourcing is very important and critical function for Tata Motors. It starts as early as early vendor introduction when the product is in concept stage. Quantum of outsourcing work and nature of technology to be developed decides the corresponding development agency. either central materials agency or the Supply Chain Management – Tata Motors Limited 21 . Different agencies participate during the entire product life cycle. Dealers group) Figure: Global challenges in automotive industry Source: IBSG. on the nature parts/aggregate. others) • Raw material and energy cost • Exchange and interest rates • Stagnanting demand and prices pressure in established market. M&As • Consolidating ecosystems (Supliers. • Global game (for example: aggressive asian companies. safety. Similarly a centralised import cell co-ordinate all import related activates. respective sourcing agency co-ordinates for fulfilling on field spare part requirements. productivity improvement cell plays an important role of helping vendors for improving productivity by special task force. 22 Supply Chain Management – Tata Motors Limited . Quality assurance plays an important role of establishing quality of new parts developed. which works at supplier’s locations. fluctuations in foreign exchange rates and slacking domestic demand has resulted into tremendous pressure on product costing as it is very difficult to TML to pass it to end customer. In recent past. If insisted by suppliers. Sourcing team co-ordinates with these different internal agencies to smoothly execute the project and meet the project time lines. E sourcing tool is effectively used to reduce cost of procurement. Tooling division provides necessary tooling as per the policy and planning done by project planning team. It also keeps vigilance for maintaining consistency in regular suppliers. oil prices. At appropriate phase. Macro level parameters such as commodity prices.sourcing group attached to the respective factory (where the part will be consumed) will initiate the process for regular procurement. Cost is an important parameter of our business model. The matter of cost increase or decrease is addressed by a separate agency that initiate and settle cost saving activities. both local and overseas. Inventory also plays a significant role in a supply chain's ability to support a firm's competitive strategy. providing instant responsiveness to the customer's demand. A supply chain manager must make routine decisions to create a more responsive and more efficient supply chain. In a pull or just-in-time environment. A major conclusion for those who manage inventory is that decreasing inventory (without increasing cost or decreasing responsiveness to the customer) can provide a significant flow time advantage in performance in the supply chain. the company can use inventory to achieve this responsiveness by locating large stocks of inventory close to the customer. suppliers may elect to locate inventories within a customer's stockroom with scheduled shipments on an hourly or minute-by-minute basis. Conversely. and retailers. and finished goods by suppliers. distributors. If a business requires a very high level of responsiveness. work in process. Mismatches are often intentional. An extreme case is a supplier colocating their specialized manufacturing within the factory of their customer. such as the case when cost effectiveness dictates batch sizes or when future demand is unclear and immediate customer delivery is required.Drivers of Supply Chain Supply chain structure Efficiency Responsiveness Inventory Transportation Facilities Logistical Drivers Information Inventory Sourcing Pricing Cross- Inventory "stockage" exists in all supply chains because of a mismatch between supply and demand. a business can also use inventory to become more efficient by decreasing inventory through centralized stocking. The spread of inventory throughout the supply chain includes raw materials. manufacturers/repairers. The tradeoff is efficiency versus responsiveness. Inventory also has a significant impact on the material flow time of a supply chain. These decisions typically focus Supply Chain Management – Tata Motors Limited 23 . a company can increase responsiveness by setting up warehouses near its customers instead of creating only one remote stock facility. Facilities Facilities include all locations in the supply chain to store. repair or delivery cycle inventory. Transportation is prominent in a company's competitive strategy when considering customer need. and flexibility of facilities significantly affect supply chain performance. capacity. (ii) Storage(warehouse. then they can use transportation as a driver for increasing supply chain responsiveness. The fundamental trade-off for transportation is cost (efficiency) versus speed (responsiveness). and warehousing methodology also affect supply chain performance by way of the facilities component. it is still a major supply chain driver. safety inventory. Since facilities are a key driver of supply chain performance. allowing them to coordinate their actions and bring about many of 24 Supply Chain Management – Tata Motors Limited . but the supply chain manager must plan for travel time and customs processing. manufacture/repair methodology. it is where personnel repair weapon systems and secondary items. Transportation Transportation moves the product between different locations in a supply chain and significantly affects both responsiveness and efficiency. different amounts) increase supply chain responsiveness but decrease efficiency. and seasonal inventory. decisions regarding location. If a firm's competitive strategy targets a customer that demands high responsiveness and that customer is willing to pay for this level. For example. factors such as location. Information Even though information does not have a physical presence. international transactions are the current commercial trend. capacity. In DoD. The type of transportation can also affect inventory and facility location. depot and field repair facilities are cornerstones of the supply chain. assemble. Information serves as the connection between the supply chain's various stages. A transportation cost analysis must consider the effects of speed on inventory required. The two major types of facilities are: (i) Manufacture/repair sites. Information deeply affects every part of the supply chain in several ways. or fabricate inventory. This usually decreases cost while increasing responsiveness. For example.on decreasing procurement. distribution) sites Whatever the function. Quicker methods (modes of transport. In DoD. These companies might find that an investment in information helps them to respond more quickly to their customers' needs. some companies target customers who require costly customized products. contract negotiation Sourcing decisions are crucial because they affect the level of efficiency and responsiveness in a supply chain In-house vs. order status. single vs. and inventory status. vary prices by response times Supply Chain Management – Tata Motors Limited 25 . Similar to all other drivers. such as the case for production scheduling.improving efficiency and responsiveness Pricing Pricing determines the amount to charge customers in a supply chain Pricing strategies can be used to match demand and supply Firms can utilize optimal pricing strategies to improve efficiency and responsiveness Low price and low product availability. Information is also crucial to the daily operations of each stage in a supply chain. Sourcing Set of business processes required to purchase goods and services in a supply chain Supplier selection. A growing trend is the importance of information and information systems in balancing responsiveness versus efficiency. businesses must trade-off between efficiency and responsiveness when trying to include more supply chain information.the benefits of maximizing total supply chain profitability. The tremendous growth of information technology as a functional discipline and a science is testimony to the impact that information has on the effective and efficient operation of a business. For example. outsource decisions. A key decision regarding information is determining what information is most valuable in decreasing cost and increasing responsiveness within a supply chain. multiple suppliers. This decision depends on the supply chain structure and market segments served. interiors. demand fluctuation will have to be reduced. Does consumer want 2 doors or 4 doors? What should be the engine capacity? Should the windshield wipers have 2 blades or 1? What instruments should be provided? Once the features and functions are finalized target costs are assigned to each and every component/system – transmission system.Case Study TATA Nano and Supply Chain As Ratan Tata unveiled the Rs 1 lakh [US$ 2500] car. engine. Target pricing process attempts to determine what features and functions the customer wants in a car. The secret of designing the Tata Nano is a concept called Target Pricing or Target Costing. They look at every bolt and nut and keep driving cost out of the components/ system. For example the Nano has a variable transmission instead of the standard gears. and electrical systems. To reduce inventory. utilizing backhauls etc. instruments. reliability of inventory replenishment will have to increased. It has instrument clusters which do not have anti-glare coating and does not use screws for fixing. eliminating waiting times and delays. increasing utilization of warehouse and trucks. It was done by a relentless focus on costs and eliminating waste and redundancy. The sub-teams then design the components/systems within the target cost. 26 Supply Chain Management – Tata Motors Limited . reduces warehousing costs and obsolescence costs. Inventory Record Accuracy will have to be above ~95% and supply chain length will have to be reduced. This same concept. drawing up the optimum transportation network. optimizing location of warehouses and plants. Reducing inventory reduces the working capital cost. every automobile company was stunned by the process which enabled the Tata Nano to be designed at this phenomenally low price. body. of relentless focus on costs and ‘scraping the barrel’ mentality can be applied to supply chains! Cost and waste is driven out of supply chains by reducing inventory. contract manufacturers. Similarly. backhauls are a way to reduce costs. Delays like waiting for loading or unloading and waiting for documents can be minimized. Supply Chain Management – Tata Motors Limited 27 . Truck utilization can be improved by using truck optimization softwares.Reducing supply chain times reduces inventory and increases responsiveness. For this a lead time map is used. To eliminate waiting times and delays the complete supply chain process will have to be mapped. it has led me to think about doing a Tata Nano with my supply chain. Supply Chain Network Design .is important because 70% of the cost of a supply chain is fixed at the design stage. Transit times can be reduced [not by fast and rash driving] but by using AC cabins and double-drivers. Also. So while Tata Nano has created a breakthrough in car manufacture by reducing the cost of a car significantly. On a strategic level.locating plants. Distribution Centers and warehouses. warehouse space can be utilized more efficiently by increasing storage heightby increasing the rack heights or having a mezzanine. Compliance such as on Tata Code of Conduct. the Company could face significant civil penalties or be forced to restrict product offerings drastically to remain in compliance. In order to ensure reliable and responsible suppliers for automotive production and service parts. All manufacturing divisions are certified for ISO 14001:2004 ñ environmental management system standard and OHSAS 18001:2007 safety and occupational health management system standard. Purchase Order. the Company may have to incur additional capital expenditure and R&D expenditure to upgrade products and manufacturing facilities. The proposed tightening of vehicle emissions regulations will require significant costs for compliance. a wholly owned subsidiary of TML. Purchase Agreement. SEBI Act. To comply with current and future environmental norms. which would have an impact on the Company's cost of production and the results of operations and may be difficult to pass through to its customers. is completed and formally approved by Tata Motors Company complies to regulations like Companies Act. If the Company is unable to develop commercially viable technologies within the time frames set by the new standards. Depositories Act.Regulations Environmental RegulationsThe automotive industry is subject to extensive governmental regulations regarding vehicle emission levels. While the Company is pursuing various technologies in order to meet the required standards in the various countries in which the Company sell our vehicles. regulations and guidelines under these Acts. Confidentiality Agreement or any other related Agreement or understanding with the Supplier in relation with the Product. is certified for all three management systems making it the only company in the auto retail industry in India to achieve this distinction. and other industrial practices. Listing Agreement and rules. the costs for compliance with these required standards can be significant to the operations and may adversely impact the results of operations. Concorde Motors. The Supplier is not expected to start production-intent supplies to Tata Motors till the time the PPAP (Production Part Approval Process). noise. safety and levels of pollutants generated by the production facilities. The Company's product development plan is structured to allow it to develop vehicles which comply with current and expected future environmental regulations particularly in the United States covered by the CAF… and in other countries such as China. 28 Supply Chain Management – Tata Motors Limited . Our Pantnagar. Tata Motors have mandated that all of its suppliers adopt the ISO 9001/TS 16949 quality management system frameworks. as per QS9000 quality systems. Company also encourage its dealers to adopt quality. environmental and safety management systems. Supplierís Financial Health Reports from independent auditors Process Audit towards supply quality or productivity. Dharwad and Sanand plants are also certified for ISO 50001:2011 energy management system standard. wooden pallets. Tata Motors (Lucknow) has won Gold at the Indian Manufacturing Excellence Awards(IMEA) in the mega large business category (automotive sector). 2012. The Amity Business Excellence Award was conferred to Tata Motors during the IT Summit Confluence 2012. straw. Supply Chain Management – Tata Motors Limited 29 . Rewards and Recognition Tata Genuine Parts was conferred with 2 awards in the Sustainable Packaging Excellence and Supply Chain Technology Advancementí categories. saw dust. at the 2nd Asia Manufacturing Supply Chain Summit. to comply with requirements from Indian authorities. at its Supply Chain Executive Conference held in Sydney (Australia). Tata Genuine Parts also won the Loyalty Award in the Best Technology used in a loyalty program category Tata Motors has been chosen in the ëAnnual Gartner Top 25 Asia Pacific Supply Chain organizations for 2012. wood waste. or the supplier may use pressed pallets instead of wooden pallets for packing. wood shaving. Tata Motors won this award for the second year running. the supplier must ensure to provide phytosanitory certificate from the Country of Origin. wooden packages. dunnage mats. if articles have been packed with packing materials of plant origin used for packing which include hay. coir pith. Tata Motors Customer Care (CVBU) won the international Customer Service Excellence Award (Large Business) at the 11th Annual Australian Service Excellence Award. Kaizen / Productivity Improvements Events Quality Certifications such as ISO/QS/TS etc Phytosanitory Certificate: For imported supplies. wood chips. peat or sphagnum moss etc. aspx http://suppliers.ed.inf.ac.pdf http://suppliers. 2012 30 Supply Chain Management – Tata Motors Limited .com/doc/51631737/Supply-chain-of-tata-motors en.org/wiki/Supply_chain_management Global challenges in automotive industry Source: IBSG.com/sustainability/pdf/annualSustainabilityReport2 012-13.tatamotors.pp www.wikipedia.uk/publications/thesis/online/IM070456.com/Project_Docs/rfq_terms_conditions.scribd.org/events/erp/TataMotors-Mr%20Rakesh%20Sharma.html Tata Motors – Company website http://www.pdf akwl.ibisworld.com/Home/frm_main.References Supply Chain Management: Strategy. Planning and Operation by Sunil Chopra Supply Chain Management : Text and Cases by Janat Shah http://www.tatamotors.com/industry/global/global-computer-hardware manufacturing.tatamotors.pdf http://www.