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Supply Chain Management Tata Motor
Supply Chain Management Tata Motor
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 India’s 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 TML’s 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 company’s 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 Company’s 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
2 Supply Chain Management – Tata Motors Limited
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 country’s 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 country’s 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 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 SIAM’s (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
20%
15%
27%
26%
10%
12%
5%
8%
4%
3%
0%
FY09 FY10 FY11 FY12 FY13 FY14E
33%
33%
28%
25%
25%
20%
16%
13%
9%
7%
6%
5%
5%
5%
3%
3%
2%
0%
0%
0%
F
-2%
2007 onwards
1993 - 07
- More than 35
marktet players
1983 -92 - Sector de-licensed - Removal of import
in 1993 control
- Major OEM started - Indian companies
- Joint venture : assembly operation gaining acceptance on
Indian government in India global scale
Before 1982 and Suzuki formed - Import permitted - Setting up of national
Maruti Udyog; from April 2001 Automotive Board to
commenced
- Close market - Introduction of act as faciltator
production in 1983
value added tax in between the
- Five Players - Component 2005 government and
- Long waiting manufacturers enter industry
period and the market via JV
outdated models - Buyer's market
- Seller's market
Toyota
5%
TATA
7%
Hyundai
M&M 21%
9%
Sour
LCV, M&HCV
Eicher Force Others
5% 3% 3%
Ashok Leyland
12%
TATA
53%
M&M
24%
Sour
Stable
Competitive
Economic
Manufacturing
Policies
Costs
Demand growth
Most leading
component Indian of 14% CAGR
makes India one
manufacturers are
QS & ISO certified
Auto the fastest
Large & growing
High Quality Hub growing markets
Standards domestic
demand
11 Indian
component 0.4 million
manufactures have engineering
won Deming Award Proximity to Availability of graduates every
Markets Manpower year
Production Capability:
Domestic and International Units produced Units Sold
Commercial vehicle 606,983 589,897
Passenger Vehicle 580,334 598,082
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.
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.
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.
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 supplier’s 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 Supplier’s 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.
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.
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.
VQA
(Material Inspection) STORES CRDO
(Acknowledgement) (Goods Inwarding)
SRM SCHEDULES
(Supplier Relationship Mgmt) MRP SALES PLAN
(Material Req Planning) (Corp. SHQ)
CRDO BMS
VQA
(Goods Inwarding) (Payment by Bank)
(Material Inspection)
SAP, VCM
Inbound Outbound
Logistics Logistics
Regional Warehouses,
Dealer Workshops,
Suppliers, Contractors Strategic Alliances 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 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
Inbound Logistic
Long-term contract with service provider’s – 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.
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 & JV’s – TACO group of companies, Tata Cummins
Centralized Strategic Sourcing for key components – FIP’s, Steel etc.
Group resources – Tata Steel and Tata International.
Localized supplier base at mfg. locations – low inventory levels.
Human Resource
Vast pool of technically competent engineers and managers.
Focus on development of technical capabilities – Technical Training Center’s, Alliance with
technical Institutes
Focus on development of managerial capabilities – MTC’s, TMTC, executive training
programs at premier business schools
Career advancement schemes – ESS, FTSS
External Customer
Legislation (environment, Stagnanting demand and
safety, others) prices pressure in established
Raw material and energy cost market.
Exchange and interest rates Segmentation and
polarization (low cost vs.
premium)
Decreasing loyality
Competition Industry
Quickly entering into every Global overcapacity
segment Complex alliances,
Moving targets - everyone Partnerships, M&As
optimising or restructuring. Consolidating ecosystems
Global game (for example: (Supliers, Dealers group)
aggressive asian companies,
new entrants)
Efficiency Responsiveness
Cross-
Information Sourcing Pricing Functional
Drivers
Inventory
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 co-locating 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 on decreasing procurement, repair or
delivery cycle inventory, safety inventory, and seasonal inventory.
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
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 ñ 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.
Supplierís Financial Health Reports from independent auditors
Process Audit towards supply quality or productivity.
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