Sourcing Strategy of Tata Motors

through Alliances

Presented By: Group 5

Anshuman Dey
G. Sai Kumar
Mainak Sinha
Pankaj Kumar
Rakesh Agarwal

Background of Dynamics of Tata Motors in 1990s

External
Economic liberalization
De-regulation & De-licensing
Easy access for foreign
players to enter into Indian
market Joint Ventures.

Internal
Change in Leadership
Ratan Tata became Group Chairman
in 1991
Consolidated businesses under Tata
Conglomerate
Extremely passionate to Automobiles
specially passenger cars

Change in Leadership as well as Regulatory and Economic Changes.

Wave 1

Strategy
at Org.
Level

Features
of the
Wave
Criticality
from
Porter
Analysis

PV : Entry in
Indian Market
(Late comer)

Wave 2
PV : Capturing
Indian Market
(Market share)

CV: Leadership in
Indian Market
(Monopoly)

CV: Face
Challenges
(Monopoly to
Oligopoly)

PV:
Conceptualization
of INDICA

PV: Launch &

Improvising
INDICA

Supplier is critical
for PV

Industry Rivalry is
critical both PV &
CV

Wave 3

Wave 4

PV & CV : Going
Global (Creating
Global Footprint)

PV & CV : Selling
Global Products
in Domestic
Market with
Modifications

PV: Acquisition of
JLR
CV: TDCV
acquisition,
NOVUS launch
Industry Rivalry/
New Entrants are
critical both PV &
CV

Sourcing Strategy

CV: Launch of
PRIMA, MO

Customer Power
is most critical

Porters 5 Force analysis for Indian passenger car industry in 1990s

Threat of new entrants

High
Delicensing, deregulation in 1991
Ford, General Motors, Toyota , Honda
approaching to capture Indian market

Bargaining power of
suppliers

Supplier base not

well developed
Imports of Parts
Indian supplier base in
nascent stage
Supplier base dedicated to
and protected by existing
players
Huge capacity constraint

Existing rivalry in the industry

Moderate
Maruti 70% market share
Ambassador,Premier Padmini
mainly used as taxi

Substitute products

Moderate
Many substitutes for transportation
No substitute for esteem need

Bargaining power
of buyers

Low but price

sensitive
Increasing
disposable income
Long waiting time
Pre-used car
market

Product Market Structure of Car Market of India in 1990s

High end

Mid end

High Price sensitivity

Aspiring Lifestyle

Increasing Disposable
Income
Low end

High Price sensitivity

High Waiting Time

High demand of pre used

cars

Huge unmet demand at low and lower mid end of market.

Market wants a cost-competitive product.
In 1994 -maiden attempt to develop the first Indian small car for the domestic
market (Noronha 2008).
On 30 December 1998, Tata Motors introduced Tata Indica.

BOTTLENECK PRODUCTS THROUGH TACO JV

Ratan Tatas vision of

creating an integrated
Indian automobile
industry to
complement Indias
car-making abilities.

Shareholding Structure of Taco

Group

Welcome to INDUCTIVE World of Sourcing strategy in TATA Motors

Diagnose the
identified
problem

Guiding Policy

Strategy

Domain of work:
TML purchase Value : Rs.20000 Cr
Total No of vendors: 375
Total no parts: 11000

Coherent Action
Plans

LOW

SUPPLY RISK

HIGH

Principles Followed:

Bought Out Parts Classification Matrix

BOTTLENECK
13% of Total Parts
15% of Total Value

STRATEGIC
2% of Total Parts
40% of Total Value

ROUTINE
80 % of Total Parts
10% of Total Value

LEVERAGE
5% of Total Parts
35% of Total Value

HIGH

LOW
PURCHASE VALUE

Source : PP Model by CJ Gelderman & AJ Vanweel (Journal of SCM 2005 Vol 41)

CLASSIFY (Bought Out Parts of TATA Motors)

Lead Time for

Contract finalization

Contract
Execution

Before
Contract

After Contract

Principles Followed:

Contract Finalization Date

Responsibility Contract
Or
Resource Contract
APPLY (CONTRACT TYPE)

Advantage of Resource Contract

Cost

Profit

Product with increasing aggregate service level

Profit + Premium for
Cost
increased service level

Cost

Profit

Premium

Value creation by Buyer by

blocking the premium through
Resource based Contracts

Value Realization by
Supplier

Commodity Product

Wave 1

LOW

SUPPLY RISK

HIGH

Business Challenge :
. Enter & Establish into PV
market

BOTTLENECK

ROUTINE

LOW

STRATEGIC

LEVERAGE

HIGH

PURCHASE VALUE

External Factors:
. High entry barrier by
Maruti for Component
Sourcing
Internal Factors:
. Zero experience in PV
development,
manufacturing & sourcing.
Sourcing Guiding Policy:
. Form TACO to work out
joint ventures for
BOTTLENECK parts.
Coherent Action Plan:
. Refer next page.

Coherent Action Plans

. Immediate formation of High Power CFT team to identify BOTTLENECK parts.
. Appointment of Mr. D .S .Gupta (Ex Maruti Director Development) as MD of TACO.
. Direct periodic review by Chairman Mr. Ratan Tata.
. Involve TATA International to facilitate JV dialogues.

. Formation of team with members from TML ERC, QA, Development department
and TACO for each category of BOTTLENECK commodity.
. Each team to present time bound techno commercial proposal to High Power CFT.

. Final selection of 13 Joint Ventures through TACO.

.

Total BOTTLENECK parts identified to explore JV

feasibility through TACO : 33 / Final Selection : 13

BOTTLENECK PRODUCTS THROUGH TACO JV

Taco Composites

SMC Technology

Taco-IPD

Injection Molded Parts

Tata Toyo

Engine Cooling System

Tata Johnson Control

Seating System

Tata Ficosa

Mirror System

Tata Hendrickson

Suspension System

Tata Yazaki

Wiring Harness System

Tata Visteon

Lighting System

Tata Knorr Bremse

Braking System

Tata GY Batteries Ltd

Battery system

Automotive Stamping Ltd

Class A sheet metal parts

Tata Chyo Springs

Suspension Coil Spring

Tata Yutogawa

Exhaust system
To start with 13 Joint Ventures

HIGH

Key Benefits:

BOTTLENECK

LOW

SUPPLY RISK

Moving from Bottleneck to Routine

ROUTINE

LOW

PURCHASE VALUE

.Dedicated Supplier
Conglomerate (Sister
Concern)
.Global Standard of
Quality
.Local Manufacturing
.Currency Risk
Mitigation
.Less Agency Cost

BOTTLENECK

STRATEGIC

Business Challenge:
. Capture Domestic Market
. More Car per Car
(Improve Quality at lees
cost)
External Factors:
. Bad Customer Experience

LOW

SUPPLY RISK

HIGH

Wave 2

ROUTINE

LOW

LEVERAGE

HIGH

PURCHASE VALUE

Internal Factors:
. High Warranty Cost
. Poor Contribution
Sourcing Guiding Policy:
. Integrated Cost reduction
Coherent Action Plans:
. Refer next page

Coherent Action Plans

. Phase wise Productionisation Plan signed-off.
( Assembly Unit -> SKD Unit -> CKD Unit -> Indigenization
. SQIG (Supply Quality Improvement Group) Process immediately implemented
under supervision of Cummins (Mr. Agnew from Cummins USA took the lead).
. SQIG as a division established with change in culture and attitude toward parts
development.
. Identified the system implementation gap with sustainable closure.
. Strategic Sourcing team formed to address and facilitate consolidated business
requirements of CV + PV + UV and Liason with TACO.
. Engage McKinsey for ICR with TACO.

LOW

SUPPLY RISK

HIGH

Moving from Routine to Leverage

BOTTLENECK

STRATEGIC

Business Challenge:
.Facing recession in
domestic market
.Going global
External Factors:
.Fierce Competition and
domestic recession
Internal Factors:
.Less contribution

ROUTINE

LEVERAGE

LOW

HIGH

PURCHASE VALUE

Sourcing Guiding Policy:

.Economies of Scale &
Scope

Coherent Action Plans:

.Horizontal Deployment &
Obtain leverage
.Vertical Integration for
system level supplier

HIGH

Competency development
for low cost alternate
sourcing

BOTTLENECK

LOW

SUPPLY RISK

Exit Out Strategy

ROUTINE

LEVERAGE

LOW

HIGH

STRATEGIC
New bottleneck parts for
new products and upgrades
of existing products.

PURCHASE VALUE

Creation of Path Dependency

Exit out from JVs which are

not techno-commercially
advantageous
Explore Exit in scopes for
new requirements.

Exit Out TACO JV

Tata Johnson Control
Tata Yazaki

Tata Yotogawa
Tata Cheo Springs

Knorr Bremse
Tata Visteon

LOW

SUPPLY RISK

HIGH

Business Challenge :
Face Industry Rivalry in CV.
Shifting from MCV to HCV

BOTTLENECK

STRATEGIC

ROUTINE

LEVERAGE

LOW

HIGH

PURCHASE VALUE

External Factors:
Long haulage truck with
High HP engine
Adaption of EURO
regulations
Internal Factors:
Not equipped for High
power engines.
Internal R&D struggling for
providing solutions
Guiding Policy:
Collaboration with World Class
Heavy Duty Automobile Engine
Manufacturers preferably
having exposure on third world
Market.

Sourcing Strategy for TATA Cummins

Sourcing
Challenge:
1. Technology
awareness &
its cost
impact

Guiding
Policy:
1.Establish
Collaborative
Long term
relationship

Coherent Action
Plan:
1.Create
opportunities
for mutual cost
reduction by
working
together in all
possible respect

Explore & Establish Interdependency : For Example

Critical Forging & Casting components from TML,
Common sourcing base for key electrical parts (
Starter Motors, Alternator from Lucas India)

Tata Cummins was born 1995

Lead In Exceeding Emission Norms

Future Technology
Competitive Advantage
Footprint in Emerging Automotive Market
50-50 Shareholding between Tata Motors & Cummins.

Value Chain & Value Creation

Supply to
OEM
Manufacturing
Product
innovation

Success
New products
Offers complete set of engines.
Introduced electronic engines in 2005 for the first time in India.
Introduction of BS3 engine well before India went for emission
change.
L series engines will provide entry to high horse power vehicle
trucks.

Value creation
Low cost producer.
Transferred at 8-10% margins.
Superior Quality product commands a price premium of 10-15%
on each vehicle.

Success

Other Qualitative Contribution

Ensures reliable supply.
Builds capacity ahead of demand.
Good support for After market
service.
Production facilities at strategic
locations.

Tata Cummins Revenue & Profit

300

1,400
Volume

Revenue

PBIT

243

250

1,200

230
202

200

1,000

184
163

800

138

150
105
91

100

101

600
91
400

69
50

200

Source: TCIL internal

20
15
(F
)

20
14
(F
)

20
13
(F
)

20
12
(F
)

P)

20
11
(A
O

20
10
(F
)

20
09

20
08

20
07

20
06

20
05

Source: TCIL internal

A Good Fit
Sequential
synergy
expected

High
importance in
Value chain

Relatively
important
softer
resources

Joint
venture

Medium to
high market
complexity

Governing Body
Mix of top leaders from both partners.
Provides guidance for strategic alignment to both partners
goal.

Incentive System
Aligns the performance with the success of customer
Profitability
50%

Safety 10%

Customer
quality (20%)
Delivery
20%

Resource commitment by partners

Resources like technology, capital were deployed at strategic point of time

1999
B mechanical
Euro2 engine
Reliable and
durable

2006

Investment in
capacity increase at
Jamshedpur plant

2005
B Mechanical Euro
3
4 valve, centered
injection

2010

Capacity expansion at
Jamshedpur plant

2008

2014

ISBe engine
Electronic engine
Euro 3 and 4

L series engine
High horse power,
next generation engine

2010

2014

Rs 600 plant in Pune

L series engine plant in

Pune
Rs 500 Cr plant

Management & operations

Fully under Cummins Inc.
Focuses on and deploy competencies related to technology,
innovation, Production processes cost and quality.
CFO is appointed by Tata motors looking after financial
interests of TML.

Customer Interfaces
Dedicated & Joint teams and forums to handle customer
interface.
Joint forums for addressing Quality and Service related issue.
Joint team for taking care of application part of engineering,
engine integration into vehicle.

Ingredients for Success

Strategy

JV goals are aligned with TML goals.

Complimentary business goals and capabilities.

Governance

Shared Governing body.

Shared understanding of goals and plans.
Commitments of partners for resources.

Organization

Alignment of performance and goals.

Best talent assigned to JV.

Value Economic

Allocation of value chain between partner.

Strong processes around the value chain.

Thank you