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Executive Summary

Supply 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 Indias 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 TMLs
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 companys 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 Companys
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
countrys 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 countrys 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

million in 2012-13. 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 19.1 per cent.
As per the SIAMs (Society of Indian Automobiles Manufactures) report,
automobile sector is going to witness a strong growth in FY14. 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

8%
3%

FY10

FY11

FY12

FY13

Supply Chain Management Tata Motors Limited

FY14E

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

Evolution of Indian Automobile Sector

2007 onwards
1993 - 07

1983 -92

Before 1982
- Close market
- Five Players
- Long waiting
period and
outdated
models
- Seller's
market

- Joint venture :
Indian
government and
Suzuki formed
Maruti Udyog;
commenced
production in
1983
- Component
manufacturers
enter the market
via JV
- Buyer's market

- Sector delicensed in 1993


- Major OEM
started
assembly
operation in
India
- Import
permitted from
April 2001
- Introduction of
value added tax
in 2005

- More than 35
marktet players
- Removal of
import control
- Indian companies
gaining
acceptance on
global scale
- 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

Supply Chain Management Tata Motors Limited

Cars & Utility Vehicles

Other; 22%
Maruti Suzuki; 36%
Toyota; 5%
TATA; 7%
M&M; 9%

Hyundai; 21%

Sou
rce: SIM, December 2013

LCV, M&HCV

Force; 3% Others; 3%
Eicher; 5%
Ashok Leyland; 12%
TATA; 53%
M&M; 24%

Sou
rce: SIM, December 2013

Supply Chain Management Tata Motors Limited 7

Supply Chain Management Tata Motors Limited

Growth drivers

Companies can
leverage Indias
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 Motor - Company Background


Established in 1945, Tata Motors presence cuts across the length and breadth of
India. Over 8 million Tata vehicles ply on Indian roads, since the first rolled out in
1954. The Companys manufacturing base in India is spread across Jamshedpur
(Jharkhand), Pune (Maharashtra), Lucknow (Uttar Pradesh), Pantnagar
(Uttarakhand), Sanand (Gujarat) and Dharwad (Karnataka). The Companys
dealership, sales, services and spare parts network comprises over 6,600 touch
points. Through subsidiaries and associate companies, Tata Motors has
operations in the UK, South Korea, Thailand, Spain, South Africa and Indonesia.
Among them is Jaguar Land Rover, acquired in 2008.
Tata Motors Limited is Indias largest automobile company. It is the leader in
commercial vehicles and among the leaders in passenger vehicles in India with
winning products in the compact, midsize car and utility vehicle segments. It is
also the worlds fourth largest bus and fifth largest truck manufacturer. Tata
Motors in 2005 was ranked among the top 10 corporations in India with an
annual revenue exceeding INR 320 billion. Tata Motors is committed to improving
the quality of life of communities by working on four thrust areas employability,
education, health and environment.
Highlights of the company (as a TATA Motor Group) in FY2012 -13
Market Capitalisation (as on 31st
March 2013)
Total revenue
Consolidated Profit

INR 79,274 cr
INR 1,89,629 cr
INR 9,893 cr

Production Capability:
Domestic and International

Units produced

Units Sold

Commercial vehicle
Passenger Vehicle

606,983
580,334

589,897
598,082

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Supply Chain Management Tata Motors Limited

Suppliers & OEM Manufactures


Provisions relating to Supply of Products
Tata Motors purchase Products from supplier, subject to supplier meeting system
specifications, quality, reliability, performance, delivery, price requirements etc.
of Tata Motors as detailed in various sections in this General Terms and
Conditions, RFQ, Drawings, Tata Motors Standards, Purchase Orders and other
agreements, such as Purchase Agreement, Supply Agreement etc. that may have
been executed with the 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. Such status, however, neither confers any legal
rights on Tata Motors nor does it impose any legal liability on supplier.
Supplier must not supply to any third party without prior written consent
from Tata Motors, if the products in Purchase Order are manufactured
using any of the following:

Any intellectual property rights of Tata Motors or its promoters.

Secret knowledge of manufacturing processes (know-how) of Tata


Motors.

Dies, moulds, models, patterns, jigs, tools or accessory equipment


that were acquired from without payment obligation or fully paid by
Tata Motors.

Similar products or their packaging supplied by supplier to the third parties


shall not bear any mark or reference of, either intellectual property rights
of Tata Motors or the Promoters of Tata Motors.
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.
The supplier needs to supply components in reusable containers.
Exceptions, if any, will have to be informed to buying agency in advance
and mutually agreed upon.
Each shipment by the supplier must be made under separate invoice.

Prices
Initial price for every item shall be settled between Tata Motors and the supplier,
based on the quotation and detailed cost break-up provided by the supplier and
mutually agreed between Tata Motors and the supplier. Tata Motors then release
Purchase Order on the supplier for the price thus settled.

Supply Chain Management Tata Motors Limited 11

Unless agreed to specifically, 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.
Together with Tata Motors, the supplier is expected to commit offsetting
inflationary increases in costs through productivity gains and reducing cost
further through value engineering, six sigma and Kaizen exercises, increased
volumes of procurement from Tata Motors leading to lower Fixed cost per unit,
achievement of higher productivity, effect of learning curve and by initiating
other cost reduction measures, and Supplier agrees to bring down the prices as
per the targets set from year to year with help of these measures.
If there are changes in the said Product specifications, which are approved
by Tata Motors, to improve quality, reliability, performance and / or
delivery requirements, the impact will be reviewed jointly and if found
appropriate, the Tata Motors will carry out the consequential amendments
in the Purchase Order.
Unless specifically agreed, unit rate applicable for serial production goods
will also be applicable for all requirements on prototypes and for service
and replacements.

Price revision effected for an item, due to Value Engineering exercises or


changes in supply conditions or specifications shall normally be considered
only once a year, or at intervals mutually agreed upon.

Any applicable development expense, such as Styling, Engineering,


Integration, Validation, tooling etc., is settled with the Supplier considering
the supplier delivers the product achieving the specified system level
targets.

Payment Terms
Local Products: Payment will be made as per payment terms as mentioned
in the Purchase Order, by the respective purchasing agencies in Tata
Motors, which are made in Indian Rupees for all procurements done in
India, and is generally made within 30 days of satisfactory acceptance of
Products at Tata Motors i.e. 30 days after Goods Inward Notification,
against documents such as (i) Lorry receipt / Rail receipt (ii) Commercial
invoice (iii) Packing list etc.
Imported Products: Payment will be made as per payment terms as
mentioned in the Purchase Order. The payment terms are generally
against irrevocable letter of credit or cash against documents. Payments
shall be released within 30 working days from submission of documents
such as (i) Bill of Lading/Airway bill, (ii) Commercial invoice, (iii) Packing
list, and (iv) Certificate of Origin etc.
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Supply Chain Management Tata Motors Limited

For the development cost to be paid in foreign currency, the agreed cost is
always gross of the Withholding tax as applicable under Double Taxation
Avoidance Treaty between India and suppliers country of origin.

Local Facility
Supplier shall normally establish its manufacturing facilities near assembly
location of Tata Motors with an objective of JIT supplies to Tata Motors. In the
event Suppliers manufacturing location is not in the vicinity of Tata Motors
ordering plant, supplier shall establish storage facility near the ordering plant of
Tata Motors to provide uninterrupted and streamlined supply of materials.
In case the initial supplies are imported, in its endeavour to remain price
competitive, 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.

Service and Replacement Parts, Spares Parts and Service


Support
At the request of Tata Motors during the period after Tata Motors complete
current model purchases, say 15 years, 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. During the final year of such period, the Supplier
and Tata Motors shall negotiate in good faith with regard to the Suppliers
continued manufacture of service and replacement supplies.
Supplier must provide such sale and after-sale service related information
as mutually agreed by the parties, such as (but not limited to) parts,
catalogue, workshop manual, training manual and maintenance guide,
diagnostic equipment etc.

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. Product specification, thus finalised, is
generally documented in the form of drawings. Supplier is expected to
participate in preparing this drawing jointly with Tata Motors, although the
responsibility of approval and release of such drawings and specs sheets is solely
with Tata Motors. The specifications can not be changed unilaterally by the
supplier without prior written approval from Tata Motors.

Forecast and Orders


Actual purchase / supply of components shall be made against specific purchase
orders.
Tata Motors provide an annual non-binding forecast to the supplier. The supplier
for planning purposes only may use this forecast.

Supply Chain Management Tata Motors Limited 13

Volume projection provided in by Tata Motors (including spare parts) is not a


commitment by Tata Motors to purchase the quantities specified. Supplier
acknowledges that Volume Projections, like any other forward looking projections,
are based on a number of economic and business factors
Initially Purchase order / Scheduling is released by Tata Motors like an open order.
After start of production of the Product, Tata Motors issue monthly supply
schedule, time to time, with specific quantities to be delivered at a time.

Packing and Transport


For Local supplies, supplier shall supply components in reusable
containers. Exceptions, if any, will have to be informed to buying agency in
advance and mutually agreed upon.
Supplier shall provide a mutually agreed Unique Identification mark
including location of Identification (such bar code, color code etc) on each
and every Product supplied, which shall be as agreed upon jointly before
start of serial production supply.
Unless agreed otherwise, product prices are inclusive of such marking
fees.

Delivery Clauses
Supplier must supply products as per Tata Motors schedules as indicated in
Purchase Order or as communicated from time to time. Supplier is expected to
agree on a specific logistics protocol with Tata Motors prior to commencement of
production.

14

Supply Chain Management Tata Motors Limited

Process Flow Charts


Supply Chain Flow: Inwarding to Dispatch

VQA

STORES

CRDO

(Acknowledgement)

(GoodsInwarding)

ASSEMBLY

VEHICLE

FINALDELIVERY

(Production)

(Inspection)

(Sales)

Supply Chain Flow: Procurement to Payment

SRMSCHEDULES
(SupplierRelationshipMgmt)

CRDO

MRP

SALESPLAN

(MaterialReqPlanning)

(Corp.SHQ)

VQA

(GoodsInwarding)

BMS

(PaymentbyBank)
(MaterialInspection) Tata Motors Limited 15
Supply Chain Management

Enterprise Resource Planning


Timelines
Before 1999
1999
1999 2008
2008 onwards

Legacy Systems
Tata Motors Lucknow first to implement SAP
3.1H
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. 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, 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

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, designing,
manufacturing, marketing etc. 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. (Cowe, 2008)
The value chain involves two types of activities: Primary activities & Support
activities. Primary activities change inputs (Inbound logistics, operation,
outbound logistics, marketing and sales, service) into outputs and bring them to
customer. All this primary activities are carried out by use of support activities
which are firm infrastructure, Human resource management, technology
development and procurement.
Every single activity in value chain can contribute to firms relative cost position
and create a basis for differentiation (Porter, 1985 In Cowe, 2008, p.178). 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.

Transporters,ConvoyDrivers
Association

DealerNetwork,Marketing
ResearchFirms,Vehicle

SAP,VCM
Inbound

Outbound
Operations

Logistics

Marketing

Service

Logistics
SAP,CRMDMS

Suppliers,Contractors

StrategicAlliances

RegionalWarehouses,
DealerWorkshops,
Distributors,TASS

As per TML, company's 24,000 employees are guided by the vision to be "best in
the manner in which we operate, best in the products we deliver, and best in our

Supply Chain Management Tata Motors Limited 17

value system and ethics." TML considers adding value process which can help to
improve work progress and in general supply chain. TML focus on development
of, technical capabilities via training centres and association with technical
institutes & management capabilities via training programmes at premier
business schools. They also carry out career advancement schemes. Along with
all this HR Management carry out various activities for their staff which results in
increased efficiency, effectiveness, engagement, superior performance,
productive and cordial relationship and thus increase organisational capabilities
in performing various primary activities such as operations, marketing, sales etc.

Inbound Logistic
Long-term contract with service providers transporters and agents.
Personnel at regional offices for overseeing the smooth transit of goods.
Transparency and monitoring through deployment of IT all transactions
through SAP.
DTL (daily transport logistics) supplies for critical high value items.
Efficient storage facilities easy storage and retrieval.

Operations
Capital Equipment Manufacturing division tooling development
capabilities of global standard.
Apprentice Trainee Course ensuring stable source of skilled manpower.
Kaizen & TPM (total productive management) team continuous drive to
improve efficiencies.
Automated manufacturing processes.
Distributed manufacturing Assembly units at South Africa, Thailand,
Bangladesh, Brazil etc.
Maintenance technical competence.
Capacity Utilization Mercedes Benz cars make use of Tata Motors paint
shop facilities.

Outbound Logistic
Stockyards, all across the country.
Long-term contracts with transporters higher volume of business to
transporters ensures competitive price.
Regional Sales Office and Vehicle Dispatch Section linked through SAP.
Efficient security system for prevention of any kind of pilferage.

Marketing & Sales


Structured approach to understanding the requirements of individual
customers QFDs conducted at regular intervals.
Clear identification of product requirements, leading to development of
innovative products Tata 207 DI, Tata Ace
Pan India presence and global footprint.
Independent teams for addressing the requirements of institutional
customers Defense, State Transport Units

18

Supply Chain Management Tata Motors Limited

Helping to augment the scarce resources Fiat selling vehicles through


Tata dealerships, in return Tata has access to Fiats technology and
unutilized capacity.
Quick assessment of the changing market dynamics and consumer
preferences Tata 407 LCV
Large network of dealers use of technology (CRM-DMS).

Service
Easy availability of spare parts.
Efficient collection of data from field and communication to the respective
plants.
Pan India presence, as well as global presence.
Large network of workshops Dealer workshops and TASS.
Training facilities for dealer end and TASS personnel.

Procurement
E procurement initiative.
Global Sourcing Team China, a key destination for sourcing essential
items like tires, power steering units etc., Steel procured from Belarus
Long-term relationships with a stable and loyal pool of suppliers.
Technology driven procurement SAP and VCM.
Strategic subsidiaries & JVs TACO group of companies, Tata Cummins
Centralized Strategic Sourcing for key components FIPs, Steel etc.
Group resources Tata Steel and Tata International.
Localized supplier base at mfg. locations low inventory levels.

Technology & Development


Approximately 2% of the annual profits of the company invested in
research and development.
Knowledge portal helps employees keep abreast with the latest
technologies.
Extensive prototype building and testing facilities.
Strategic partnerships MDI (France), Fiat etc.
Formal benchmarking process.
Technology Day organized across all plant locations.

Human Resource
Vast pool of technically competent engineers and managers.
Focus on development of technical capabilities Technical Training
Centers, Alliance with technical Institutes
Focus on development of managerial capabilities MTCs, TMTC, executive
training programs at premier business schools
Career advancement schemes ESS, FTSS

Supply Chain Management Tata Motors Limited 19

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, including R&D and
manufacturing. In fact, emission-level targets, currently in question, threaten the
entire structure of the auto industry.
These challenges hit an industry already plagued with high costs, low profit
margins, and accelerated competition. New entrants from China and India are
working aggressively to capture the share of the global market, 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,
and then Europe later.
General macroeconomic and financial circumstances are not necessarily
favorable. The cost of energy and raw material continues to increase due to
rising global demand. Strong fluctuation in exchange and interest rate pose
another challenge and are difficult and costly against which to hedge.
In this dynamics business environment, a superior supply chain is one critical
element to helping automakers differentiates themselves from the competition.
In fact, many of trends in the auto industry are reinforcing the need to redefine
supply chain strategies, layout, and operations.
The most complex challenges automakers faces are summarized:

20

Supply Chain Management Tata Motors Limited

External

Customer

Legislation
(environment, safety,
others)
Raw material and
energy cost
Exchange and interest
rates

Stagnanting demand
and prices pressure in
established market.
Segmentation and
polarization (low cost
vs. premium)
Decreasing loyality

Competition

Industry

Quickly entering into


every segment
Moving targets everyone optimising or
restructuring.
Global game (for
example: aggressive
asian companies, new
entrants)

Global overcapacity
Complex alliances,
Partnerships, M&As
Consolidating
ecosystems (Supliers,
Dealers group)

Figure: Global challenges in automotive industry Source: IBSG, 2012


Based on these challenges, 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, 2012

Environment of Supply chain Tata Motors Ltd


Sourcing is very important and critical function for Tata Motors. Different
agencies participate during the entire product life cycle. It starts as early as
early vendor introduction when the product is in concept stage. Strategically
important sources with a potential of developing relationship into strategic
alliances are finalised during this step. Quantum of outsourcing work and nature
of technology to be developed decides the corresponding development agency.
After which specific nodal agency is responsible for development of parts and
aggregates till the product is brought to the level of regular procurement.
Further, on the nature parts/aggregate, either central materials agency or the

Supply Chain Management Tata Motors Limited 21

sourcing group attached to the respective factory (where the part will be
consumed) will initiate the process for regular procurement.
Quality assurance plays an important role of establishing quality of new parts
developed. It also keeps vigilance for maintaining consistency in regular
suppliers. Cost is an important parameter of our business model. In recent past,
Macro level parameters such as commodity prices, oil prices, 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. The matter of cost increase or decrease is addressed by a
separate agency that initiate and settle cost saving activities. 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. Sourcing team co-ordinates with these different
internal agencies to smoothly execute the project and meet the project time
lines. If insisted by suppliers, productivity improvement cell plays an important
role of helping vendors for improving productivity by special task force, which
works at suppliers locations.
At appropriate phase, respective sourcing agency co-ordinates for fulfilling on
field spare part requirements, both local and overseas. Similarly a centralised
import cell co-ordinate all import related activates.

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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. Mismatches are often intentional, such as
the case when cost effectiveness dictates batch sizes or when future
demand is unclear and immediate customer delivery is required. The
spread of inventory throughout the supply chain includes raw materials,
work in process, and finished goods by suppliers, manufacturers/repairers,
distributors, and retailers. Inventory also has a significant impact on the
material flow time of a supply chain. 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.
Inventory also plays a significant role in a supply chain's ability to support
a firm's competitive strategy. If a business requires a very high level of
responsiveness, the company can use inventory to achieve this
responsiveness by locating large stocks of inventory close to the customer.
In a pull or just-in-time environment, suppliers may elect to locate
inventories within a customer's stockroom with scheduled shipments on
an hourly or minute-by-minute basis. An extreme case is a supplier colocating their specialized manufacturing within the factory of their
customer, providing instant responsiveness to the customer's demand.
Conversely, a business can also use inventory to become more efficient by
decreasing inventory through centralized stocking. The tradeoff is
efficiency versus responsiveness.
A supply chain manager must make routine decisions to create a more
responsive and more efficient supply chain. These decisions typically focus

Supply Chain Management Tata Motors Limited 23

on decreasing procurement, repair or delivery cycle inventory, safety


inventory, and seasonal inventory.
Transportation
Transportation moves the product between different locations in a supply
chain and significantly affects both responsiveness and efficiency.
Quicker methods (modes of transport, different amounts) increase supply
chain responsiveness but decrease efficiency.
The type of transportation can also affect inventory and facility location.
For example, international transactions are the current commercial trend,
but the supply chain manager must plan for travel time and customs
processing.
Transportation is prominent in a company's competitive strategy when
considering customer need. If a firm's competitive strategy targets a
customer that demands high responsiveness and that customer is willing
to pay for this level, 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). A transportation cost analysis must consider the
effects of speed on inventory required.
Facilities
Facilities include all locations in the supply chain to store, assemble, or
fabricate inventory. In DoD, it is where personnel repair weapon systems
and secondary items. The two major types of facilities are:
(i)
Manufacture/repair sites; (ii) Storage(warehouse, distribution) sites
Whatever the function, decisions regarding location, capacity, and
flexibility of facilities significantly affect supply chain performance. For
example, a company can increase responsiveness by setting up
warehouses near its customers instead of creating only one remote stock
facility. This usually decreases cost while increasing responsiveness. Since
facilities are a key driver of supply chain performance, factors such as
location, capacity, manufacture/repair methodology, and warehousing
methodology also affect supply chain performance by way of the facilities
component.
In DoD, depot and field repair facilities are cornerstones of the supply
chain.
Information
Even though information does not have a physical presence, it is still a
major supply chain driver. Information deeply affects every part of the
supply chain in several ways.
Information serves as the connection between the supply chain's various
stages, allowing them to coordinate their actions and bring about many of
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the benefits of maximizing total supply chain profitability. Information is


also crucial to the daily operations of each stage in a supply chain, such as
the case for production scheduling, order status, and inventory status.
A growing trend is the importance of information and information systems
in balancing responsiveness versus efficiency. 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.
Similar to all other drivers, businesses must trade-off between efficiency
and responsiveness when trying to include more supply chain information.
A key decision regarding information is determining what information is
most valuable in decreasing cost and increasing responsiveness within a
supply chain. This decision depends on the supply chain structure and
market segments served. For example, some companies target customers
who require costly customized products. These companies might find that
an investment in information helps them to respond more quickly to their
customers' needs.
Sourcing
Set of business processes required to purchase goods and services in a
supply chain
Supplier selection, single vs. multiple suppliers, contract negotiation
Sourcing decisions are crucial because they affect the level of efficiency
and responsiveness in a supply chain
In-house vs. outsource decisions- 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; vary prices by response times

Supply Chain Management Tata Motors Limited 25

Case Study
TATA Nano and Supply Chain
As Ratan Tata unveiled the Rs 1 lakh [US$ 2500] car, every automobile company
was stunned by the process which enabled the Tata Nano to be designed at this
phenomenally low price. It was done by a relentless focus on costs and
eliminating waste and redundancy.
The secret of designing the Tata Nano is a concept called Target Pricing or
Target Costing.
Target pricing process attempts to determine what features and functions the
customer wants in a car. 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, instruments, engine, body,
interiors, and electrical systems. The sub-teams then design the
components/systems within the target cost. They look at every bolt and nut and
keep driving cost out of the components/ system.
For example the Nano has a variable transmission instead of the standard gears.
It has instrument clusters which do not have anti-glare coating and does not use
screws for fixing.
This same concept, 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, eliminating
waiting times and delays, increasing utilization of warehouse and trucks,
optimizing location of warehouses and plants, drawing up the optimum
transportation network, utilizing backhauls etc.
Reducing inventory reduces the working capital cost, reduces warehousing costs
and obsolescence costs. To reduce inventory, demand fluctuation will have to be
reduced, reliability of inventory replenishment will have to increased, Inventory
Record Accuracy will have to be above ~95% and supply chain length will have
to be reduced.
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Reducing supply chain times reduces inventory and increases responsiveness. To


eliminate waiting times and delays the complete supply chain process will have
to be mapped. For this a lead time map is used. Delays like waiting for loading or
unloading and waiting for documents can be minimized. Transit times can be
reduced [not by fast and rash driving] but by using AC cabins and double-drivers.
Also, backhauls are a way to reduce costs.
Truck utilization can be improved by using truck optimization softwares. Similarly,
warehouse space can be utilized more efficiently by increasing storage heightby increasing the rack heights or having a mezzanine.
On a strategic level, Supply Chain Network Design - locating plants, contract
manufacturers, Distribution Centers and warehouses- is important because 70%
of the cost of a supply chain is fixed at the design stage.
So while Tata Nano has created a breakthrough in car manufacture by reducing
the cost of a car significantly, it has led me to think about doing a Tata Nano with
my supply chain.

Supply Chain Management Tata Motors Limited 27

Regulations
Environmental RegulationsThe automotive industry is subject to extensive
governmental regulations regarding vehicle emission levels, noise, safety and
levels of pollutants generated by the production facilities. The proposed
tightening of vehicle emissions regulations will require significant costs for
compliance. 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, the costs for compliance with these required standards can be
significant to the operations and may adversely impact the results of operations.
To comply with current and future environmental norms, the Company
may have to incur additional capital expenditure and R&D expenditure to
upgrade products and manufacturing facilities, 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. If the Company is
unable to develop commercially viable technologies within the time
frames set by the new standards, the Company could face significant civil
penalties or be forced to restrict product offerings drastically to remain in
compliance. 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.
All manufacturing divisions are certified for ISO 14001:2004
environmental management system standard and OHSAS 18001:2007 safety and occupational health management system standard. Our
Pantnagar, Dharwad and Sanand plants are also certified for ISO
50001:2011 energy management system standard. In order to ensure
reliable and responsible suppliers for automotive production and service
parts, Tata Motors have mandated that all of its suppliers adopt the ISO
9001/TS 16949 quality management system frameworks.
Company also encourage its dealers to adopt quality, environmental and
safety management systems. Concorde Motors, a wholly owned subsidiary
of TML, is certified for all three management systems making it the only
company in the auto retail industry in India to achieve this distinction.
The Supplier is not expected to start production-intent supplies to Tata
Motors till the time the PPAP (Production Part Approval Process), as per
QS9000 quality systems, is completed and formally approved by Tata
Motors
Company complies to regulations like Companies Act, SEBI Act,
Depositories Act, Listing Agreement and rules, regulations and guidelines
under these Acts.
Compliance such as on Tata Code of Conduct, and other industrial
practices, Purchase Order, Purchase Agreement, Confidentiality Agreement
or any other related Agreement or understanding with the Supplier in
relation with the Product.
Suppliers Financial Health Reports from independent auditors
Process Audit towards supply quality or productivity.
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Kaizen / Productivity Improvements Events


Quality Certifications such as ISO/QS/TS etc
Phytosanitory Certificate: For imported supplies, the supplier must ensure
to provide phytosanitory certificate from the Country of Origin, to comply
with requirements from Indian authorities, if articles have been packed
with packing materials of plant origin used for packing which include hay,
straw, wood shaving, wood chips, saw dust, wood waste, wooden pallets,
dunnage mats, wooden packages, coir pith, peat or sphagnum moss etc.
or the supplier may use pressed pallets instead of wooden pallets for
packing.

Rewards and Recognition


Tata Genuine Parts was conferred with 2 awards in the Sustainable
Packaging Excellence and Supply Chain Technology Advancement
categories, at the 2nd Asia Manufacturing Supply Chain Summit. 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 Annual Gartner Top 25 Asia Pacific
Supply Chain organizations for 2012, at its Supply Chain Executive
Conference held in Sydney (Australia).
Tata Motors (Lucknow) has won Gold at the Indian Manufacturing
Excellence Awards(IMEA) in the mega large business category (automotive
sector).
The Amity Business Excellence Award was conferred to Tata Motors during
the IT Summit Confluence 2012.
Tata Motors Customer Care (CVBU) won the international Customer Service
Excellence Award (Large Business) at the 11th Annual Australian Service
Excellence Award, 2012. Tata Motors won this award for the second year
running.

Supply Chain Management Tata Motors Limited 29

References
Supply Chain Management: Strategy, Planning and Operation by Sunil
Chopra
Supply Chain Management : Text and Cases by Janat Shah
http://www.inf.ed.ac.uk/publications/thesis/online/IM070456.pdf
http://www.ibisworld.com/industry/global/global-computer-hardware
manufacturing.html
Tata Motors Company website
http://www.tatamotors.com/sustainability/pdf/annualSustainabilityReport2
012-13.pdf
http://suppliers.tatamotors.com/Home/frm_main.aspx
http://suppliers.tatamotors.com/Project_Docs/rfq_terms_conditions.pdf
akwl.org/events/erp/TataMotors-Mr%20Rakesh%20Sharma.pp
www.scribd.com/doc/51631737/Supply-chain-of-tata-motors
en.wikipedia.org/wiki/Supply_chain_management
Global challenges in automotive industry Source: IBSG, 2012

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