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Tata Indica: The Making of the Small Car

The case provides an understanding of the issues concerning the supply chain management system at Telco in regard to its small car, Indica. It outlines how Telco, built the supply chain for the car by leveraging its existing competencies and how it transformed itself from an integrated truck manufacturer to an automobile integrator and from a product-centric company to competence- centric company. The case discusses various components of the supply chain and emphasizes how Telco orchestrated them with the objective of minimizing costs.

The history of Telco, India's leading automobile manufacturer dates back to the early 1920s. The location of the Telco plant originally belonged to Peninsular Locomotive Company (Peninsular), which was established in Tatanagar, Jamshedpur in 1923. In 1927, Peninsular was taken over by East India Railway to manufacture passenger carriage underframes for the Indian Railways. In 1945, Tata Sons purchased the plant from the Government of India for manufacturing steam locomotive boilers and other engineering products, under the name Tata Locomotive & Engineering Company. Initially the company manufactured broad gauge open wagons for the Indian Railways. By 1947, it started producing boilers for imported locomotives. The company also entered into collaborations with Marshal Sons (UK) to manufacture steam road roller, and with Krauss Maffei (West Germany) to manufacture steam locomotives. In 1954, the company entered into a technical collaboration with Daimler-Benz to manufacture automotive vehicles. The association with Daimler-Benz helped the company build up a strong in-house R&D center (Engineering Research Center ERC) at Pune, Maharashtra. In 1960, company's name was changed to Tata Engineering & Locomotive Company Ltd. By 1961, it was manufacturing construction equipments. Over the years, the company acquired technology from several collaborations and co-operation agreements with international companies. In 1961, Telco produced its first crane in collaboration with M/s Pawling & Harnischfeger (P&H), U.S.A. In 1966, it acquired Investa Machine Tools Co and set up a machine tools division at Pune. In the same year, it started its Press Tool Division and vehicle manufacture facilities at Pimpri and Chinchwad (Pune).

In the early 1990s, Telco's Chairman Ratan Tata (Tata), was flirting with the idea of developing a small car. By mid-1994 a rudimentary design was in place. In 1995, Telco announced that it planned to build a car which would be priced close to the Maruti 800, shaped like the Zen, and spacious as an Ambassador. Producing the new small car - Indica - represented a different kind of challenge for Telco. Should Tata succeed, he would change the face of Telco. As a truck-maker, Telco was so integrated that it even made it own castings and forgings. As an automaker, it would have to focus on the value chain that stretched between raw materials and after-sales service as well as assembling the parts into the complete automobile. For its new venture, Telco outsourced 80% of the components (1,200 of its 1,500-plus parts), from 200-odd vendors. To develop the Indica, Telco had to combine the learnings from its predecessors with its own unique supply chain management strategies to ensure a sustainable low-cost platform...

The Outsourcing Strategy

For Telco, outsourcing seemed to be one of the most difficult aspects of producing the Indica. Unlike global automobile majors, Ford Motors or General Motors, which had a global vendorbase that could be replicated on a smaller scale in India, Telco had to create a vendor-base from scratch. Moreover, it did not have the expertise either to design a car or to build an engine for it. Against this background, Telco had to take its primary 'make-or-buy' decisions for the key inputs-design, engine, and transmission. Telco decided to shop globally for the best deals and use its own expertise to make whatever modifications were needed...

Vendor Development
Once Telco made its make-or-buy choices, the next step was to identify the vendors. Most of the parts that went into making Telco were sourced locally. Except for some sheet metal parts, cylindrical gaskets, and belts--which accounted for 2% of the component value, the Indica was totally indigenous. K. Mahesh, CEO, Sundaram Brake Linings, said, "Localisation of components is the most important challenge a new manufacturer faces. It is a time-consuming and painstaking process."...

Supply Chain
To keep its transaction costs low, Telco configured its supply chain on a just-in-time basis. All high-value components were delivered daily, and in the case of nearby suppliers, twice a day. Vendors who were located far away from Pune set up local warehouses near the plant. The

rationale for the relocation: transportation costs alone accounted for 45% of the total logistics costs for a company, delays in supplies added to costs in terms of machine down-time at the plant.

Leveraging the Supply Chain

Indica marked the beginning of Telco's drive into India's auto market as an integrator with a multi-product portfolio. Analysts felt that the competencies that Telco had grown in the process of marketing Indica would be the core around which it would build its future car business. Analysts also felt that Tata would use the supply chain that fed the Indica to feed a whole range of Telco cars of the future...

This case discusses the operations management processes adopted by Whirlpool. The case begins with a detailed description of the history of Whirlpool. It describes how Whirlpool grew from being a small firm manufacturing wringer washers in 1911, to becoming one of the most well-established brands in the world appliance market by the early-2000s. The case explains the various initiatives on operations management taken up by Whirlpool. It also explains the reasons behind the company changing its manufacturing strategy from a 'push' system to a 'pull' system and further to a 'hybrid push/pull' system. The case then gives a detailed description of the e-initiatives taken up by Whirlpool. By 1999, Whirlpool started using Electronic Data Interchange (EDI) as a part of its supply chain initiative, in order to cut down on expenses. In September 2002, it decided to leverage on the e-commerce boom and launched an online sales program called e-Partner. Whirlpool also decided to outsource some of its logistics activities to third parties so that it could concentrate on its key processes.

Whirlpool Corporation (Whirlpool) was the world's leading manufacturer and marketer of home appliances in the 1990s and 2000s. (Refer to Exhibit-I on the major appliance manufacturers in the world). It led the appliance market in the United States and South America and was among the top three manufacturers in Europe. (Refer to Exhibit-II on the appliance industry in the US). It was also the largest western appliance manufacturer in Asia. The company was the leading manufacturer of refrigerators, microwave ovens, washers, dryers and air conditioners, and marketed its products under the names Kenmore, Sears, KitchenAid, Roper, Inglis and Speed Queen, in addition to the brand name 'Whirlpool'. (Refer to Exhibit-III for Whirlpool's brands and products).

As a manufacturing company, Whirlpool placed considerable emphasis on operational efficiency. The company began restructuring its operations in the early-1990s to orient itself to changing market conditions. As a part of its operational restructuring, the company set up several cross-functional teams for key product areas, entered into several agreements with its suppliers based on their reliability and their ability to assist in product design and began using Electronic Data Interchange (EDI)3 to communicate with its suppliers. Almost all the Whirlpool stores around the world were linked with ebusiness software. The software linked each of its factories and sales operations with suppliers and keyretail partners. Whirlpool's Vice-President, Paul J. Dittmann (Dittmann), remarked in the late-1990s that at Whirlpool, logistics did not start with the distribution of a finished product but was a true supply chain strategy, which encompassed materials flow into and through the manufacturing process. The company's supply chain executives charted the vision, "Winning companies will be those who come the closest to achieving an inter-enterprise pull system. They will be linked in a short cycle response mode to the customer."As a result of these initiatives, by the early 2000s, Whirlpool had product availability in the range of 90 to 95 per cent, inventories were reduced by 15 to 20 per cent and lead times became as low as five days.

Operations at Whirlpool
Whirlpool's operations were based on Six-Sigma, and lean manufacturing skills and capabilities. The company used information technology tools to cut down on the cost of doing business. Its unique global platform helped it transfer its key innovations and processes across regions and brands.

Globalization of Key Functions

During the mid-1990s, Whirlpool carried out a massive restructuring and reorganizing exercise to create a more responsive environment to work in. In this process, it globalized some of its key functions including procurement and product development. Whirlpool's procurement was one of the first functions to go global. As the company was spread across the globe, suppliers found it a very attractive customer. Whirlpool's Global Procurement department entered into deals with suppliers around the world and ensured that it used only highquality, low-cost materials and components while manufacturing its home appliances.
By selecting and partnering with the best suppliers globally, it tried to deliver the best value to its customers. Further, a partnership with Whirlpool benefited the suppliers as it gave them an opportunity to sell globally...

By 2003, after more than a decade in logistics planning, Whirlpool's supply chain was 50-60 percent complete. Although the company ensured that it consistently improved its quality levels

and reduced its cycle time and costs, there was still a lot of scope for improvement. Selling its products on a global platform was a very difficult and challenging task. Its warehouses had to get faster, its transportation carriers had to reduce transit time, factories had to change schedules faster and run with smaller lot sizes so that they could produce several SKUs every day. And for this, it realized that its entire supply chain had to be made more flexible.
VOLVO COMPANY The case describes the product development practices of Swedish automobile manufacturer - Volvo Car Corporation. Since its inception, Volvo has laid emphasis on automobile safety. The case elaborates on Volvo's production system and explains how the system was oriented towards manufacturing the safest cars in the world. At Volvo Safety Center, one of the most advanced safety engineering facilities, vehicles and their components were subjected to safety tests including computer simulation, component testing and crash testing. The case also discusses the various safety features incorporated in the Volvo Safety Concept Car and provides an overview of other advanced safety features which Volvo plans to introduce in near future.

In January 2004, at the North American International Auto Show held in Detroit, the Swedish car manufacturer - Volvo Car Corporation (VCC)3 - unveiled two new safety systems for its automobiles - Adaptive Cruise Control and Warning System with Break Support. Industry analysts pointed out that these state-of-the-art safety technologies reaffirmed Volvo's top position in the field of automobile safety and contributed towards better accident prevention in Volvo cars. Commenting on the systems, Lex Kerssemakers, Vice-president, Global Marketing, and Head, Product Planning, at Volvo Cars said, "We see these advanced systems as vital in our ongoing strategy of remaining world leaders in the field of safety." Since it began making cars in 1924, Volvo has always been at the forefront in conducting R & D for safety technologies, which were way ahead of the times. By doing so, the company enhanced its brand image to such an extent that the name, 'Volvo' became a synonym for safety. The company was credited with introducing several path breaking safety technologies during its eight-decade history. For instance, the three-point seat belt, which Volvo introduced in 1958, was later made mandatory for automobiles across the world. Volvo also introduced the side impact protection system in 1992, five years before they were made compulsory in the US (Refer Exhibit I for Volvo Safety Firsts). Analysts felt that Volvo's constant emphasis on safety research played a major role in developing advanced safety technologies.
The Volvo Safety Centre, which the company inaugurated in 2000, had facilities for conducing crash tests which, analysts said, had not been replicated anywhere till late 2004. Commenting on the value proposition offered by Volvo to its customers, Maryann Keller, an automobile industry analyst noted, "Since the introduction of airbags in the late 1980s, the industry has understood

that safety sells. A customer who buys a Volvo may find that incremental value is worth the cost simply because (he or she) already places a higher than normal value on safety."

Volvo's Production System

Right from its inception, Volvo was known for its innovative approach towards product development in the automotive industry.
Larson and Gabrielsson innovated the practice of 'building cars the Volvo way.' According to this concept, as against the usual practice of purchasing parts and assembling them, most car parts at Volvo were designed in-house and then manufactured by outside contractors according to strict technical specifications. Volvo conducted a major experiment in the field of automobile production during the 1970s. The company decided to deviate from the traditional assembly line system of manufacturing cars, in which the car was moved automatically along the assembly line at a pre-determined pace, while workers located at fixed positions performed their respective assembly roles...

Commitment to Safety
Volvo's emphasis on safety dates back to its early days, when in 1927, the company installed a safety glass windshield, equipped with automatic windshield wipers. Over the years, Volvo came to be recognized for the high safety standards of its vehicles. Volvo's major contribution to automobile safety was the three point shoulder/lap seat belts developed by its engineer, Nils Bohlin in 1958. In 1959, Volvo became the first car company in the world to offer the threepoint seat belt as a standard feature in all its cars...

The Volvo Safety Centre

Continuing with its commitment to safety, in 2000, Volvo established the Volvo Safety Centre (VSC) at Gothenburg at an investment of 50 mn. The VSC was believed to be the world's most advanced automobile safety testing laboratory. Volvo conducted various types of tests on cars, including computer simulation, component testing and crash simulation, to get a comprehensive understanding of how to make cars safer for drivers and passengers. Commenting on the importance of VSC, its head, Stefan Nilsson (Nilsson) said,
"We have the ability to move the reality of the roads into our crash laboratory. This unit gives us the technology and the capacity to continue being the world leaders in this field. Our new centre means we have the ability to create an unbeatable safety development package for new cars. When it comes to safety, Volvo leads the way." (Refer Exhibit IV for the various tests conducted at the Volvo Safety Centre)...