Abstract:

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.

Issues:

» Familiarize the student with the concept of the supply chain as well as the practical dimension
of the same and its significance in lowering overall costs of a product

Contents:

  Page No.
Background Note 1
The Story of Indica 3
The Outsourcing Strategy 3
Vendor Development 4
Supply Chain 6
Leveraging the Supply Chain 7

Keywords:

supply chain management, Telco, small car, Indica, leveraging, competencies, transformed,
integrated truck, manufacturer, automobile integrator, product-centric, competence- centric
company, components, supply chain, Telco, minimizing costs

"Telco's Indica not only has a new plant and a new set of people manning the plant, but also new
manufacturing philosophies, new systems and new processes in place, as it gets ready to take on
its competition in the millennium to come."

- Business India, March 22, 1999.

Background Note
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 (Refer Table I).

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).

The first commercial vehicle was produced in

1977. In 1983, Telco started producing heavy
commercial vehicles.

In 1986, the company

rolled out its first light
commercial vehicle -
TATA 407 that had a
completely indigenous
design. In 1991, Telco
produced indigenously -
designed passenger cars -
Tata Sierra and Tata
Estate and in the same
year it started its
assembly and training
plant at Lucknow (Uttar
Pradesh). The product
range of the company
included passenger cars,
heavy commercial
vehicles, trucks and buses
(Refer Table II).

By the late 1990s, Telco

had emerged as a leading
name in commercial
vehicles, passenger
vehicles, construction
equipment, metal cutting
and grinding machines,
industrial shutters, high
quality steel, alloy
castings and other related
products.
In 2000, commercial vehicles accounted for 94%
of its gross revenues; vehicle spare parts
accounted for 5%; and hire purchase income, 1%.

The Story of Indica

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 vendor-base
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 (Refer Table III for the components
outsourced by Telco)...

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.

Meanwhile, on the shop floor, where the assembly

line was located, Telco had done away with the
traditional store function...

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...