Tata Motors - B2B Case Analysis
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- In 2001, Tata Motors posted a net loss of Rs. 5 billion and undertook a unique cost reduction program called "cost erosion" to reduce costs in areas like materials, conversion, fixed costs, and financial restructuring. - A three-tier team focused on value engineering, vendor analysis, and e-procurement to reduce costs. Changes to purchasing like e-sourcing and shifting to single vendors from multiple vendors helped save Rs. 4,000 crore. - Understanding customer segments better and commitment to customers helped Tata Motors launch the world's cheapest car, Nano.
Tata Motors - B2B Case Analysis
- 1. Badam Niharika - 1421036 Shefali Verma - 1421057 Pooja Gupta - 1421149 Olwan Sheikh - 1421220 Mayank Singh - 1421216 Majid Hussain - 1421214 Mohammed Ismail Khan - 1421218
- 2. “ Cost Erosion at Tata Motors” Situation Analysis: • Depressed market conditions. • Low Revenue Growth. How to make Profits? • Answer: Reduce Costs. • Prakash M Telang, Senior Vice President (Manufacturing) was appointed as the ‘Cost- Erosion Champion’.
- 3. • Established – 1945 • Till 1990’s – Commercial Vehicle Segment • 1994- Entered SUV segment • 1999 – Entered Passenger Car segment • 2003 – Midsize Car segment
- 4. Tata Motors posted a net loss of Rs. 500 Crores (Rs. 5 billion) in 2001. Mar '05 Mar '04 Mar '03 Mar '02 Mar '01 Sales Turnover 20,262.61 15,298.47 10,700.66 8,710.05 7,969.49 Total Income 17,747.15 13,115.02 9,221.68 7,365.48 6,921.15 Total Expenses 15,343.12 11,158.91 8,016.15 6,700.37 6,402.36 Operating Profit 2,000.05 1,727.28 1,060.46 571.36 331.56 Net Profit 1,236.95 810.34 300.11 -63.39 -500.34
- 5. for the Cost Erosion Initiative • Direct material costs: 65 per cent of all costs. • Variable conversion costs: Power, fuel, water, tools, etc. • Fixed costs: Labor, marketing, corporate expenses, plant operations, research and development. • Financial restructuring: Working capital, debt restructuring, balance sheet, etc.
- 6. • Tool to company turnaround • Need Cross functional team • E-sourcing as an alternative to traditional purchasing • Single vendor policy to maintain healthy relationship • Shift from a hierarchical model to a collaborative approach
- 7. • Quality improvement initiative – started in September 2000 based on the Six Sigma model. • Workforce went through training courses • Increase its production capacity from 330,000 to 360,000 units, by the end of 2004. • Reducing costs significantly by maintaining healthy vendor relationships.
- 8. STRENGTHS WEAKNESSES • Strong domestic player. • Its demand driven and customer-oriented. • Long list of portfolios. • Low return of investment. • Products are not considered luxurious. • Safety Standard issues. • Limited consumer base.
- 9. Opportunities Threats • The product line of TATA has a great opportunity to improve. • Increase of e- sourcing and vendor management • Government taxation policies. • Drastic increase in the volume of production despite of losses • The price of aluminum is increasing
- 10. • Tata Motors Looked Towards Re-hauling their entire procurement strategy • Hence It Went into a New Task system where: • All value additions were to be integrated at the suppliers front (Saves VAT) • E –Sourced and E auctioned its contracts (saved 300 Crores) • E-Procurement, Shifted from dealing with many suppliers to few suppliers • Sought long term dealing and relationship with these few suppliers.
- 12. • Re-negotiation with the existing vendors to reduce prices. • Shift from multi-vendor strategy to single- vendor strategy. • Vendor SWOT analysis was conducted. • Track its relationship with the vendor in terms of the bargaining power and purchasing value.
- 13. • In the year 2001 Tata motors posted a net loss of 5 billion . • Unique cost reduction programme was undertaken called “cost erosion” • The cost reduction were done in direct material cost, variable conversion cost, fixed cost, and on financial restructuring. • The three tier team was appointed to focus on value engineering, vendor analysis, e-procurement selling and for selling their financial investments. • Value team was formulated • Value chain analysis helped in saving 4000 crore.
- 14. • To save on cost changes were made in purchasing pattern • Introduced e- sourcing by replacing the traditional purchasing mode. • E-auction helped in saving around 300crore • For many product categories company shifted from multi vendor policy to single vendor . • Major focus was shifted on understanding and developing the market segments and commitment to customers • As a result Tata motors gave worlds cheapest car NANO.