spend analysis of leaf springs procurement
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Commercial Vehicles Business Unit
(CVBU- PUNE)
A PROJECT REPORT ON
PRICE AMENDMENT ANALYSIS OF FORGING PARTS &
SPEND ANALYSIS OF LEAF SPRINGS PROCUREMENT
BY
AMIT P. JAIN
(VISHWAKARMA INSTITUTE OF MANAGEMENT, PUNE)
In Partial Fulfillment of M.B.A. course, University of Pune
PROJECT GUIDE:
MR. AMIT MADANKAR
(Manager, MPC Dept,)
JUNE - JULY 2006
ACKNOWLEDGEMENT
I would like to express my gratitude to Mr. V.N. Bedekar (General Manager
(Matls)) & Mr. A.P. Renavikar (Asst. General Manager (Matls)) for giving me an
opportunity to work on such an existing project. I also convey my sincere thanks to Mr.
Amit A. Madankar (Manager (Matls)) & Mr. Abhijeet A. Gadgil (Asst. Manager
(Matls)), moreover their precious guidance, valuable advice & suggestions from time to
time not only kept me on track, gave the right directions to my project but also inspired
me to take-up any Herculean task in future. I am also grateful to them not only for the
guidance in the project but also for involving me in their day to day work schedules &
arming me with the unique kind of experience which will prove to be very precious &
important from futuristic career point of view.
I would also like to take this opportunity to convey my special thank to Ms.
Purvee B. Parekh (Matls Officer), Mr. Mahesh V. Karekar (Officer (Matls)), Mr. Vinod
F. Moras (Materials Officer) & Mr. Rakesh Kondekar (Tech. Vocational Apprentice)
without the assistance of whom it would have been a very difficult task to complete this
project. They have been a constant source of help throughout the project.
Last but not the least I acknowledge & convey my sincere gratitude to everyone in
the MPC dept. to involve me with them & providing very needful help from time to time.
In the end I would like to thank Prof. Mr. Vhatkar & Prof. Mrs. Gote for their
kind support & co-operation during my project.
Thanking you
Amit P. Jain
INDEX
Sr. Topic Page No. No.
01. EXECUTIVE SUMMARY 01-02
ABBREVIATIONS & MEANINGS 03-05
02. OBJECTIVE 06-13
2.1 Price Amendment Analysis of Forging Parts 06 2.2 Spend Analysis of Leaf Springs 09
03. TATA MOTORS LTD. 14-25
3.1 Company Profile 14 3.2 Milestones 16 3.3 Pune Plant 21 3.4 Commercial Vehicles by Tata Motors 23
04. INTRODUCTION & BACKGROUND 26-30
4.1 Cost Erosion in TATA Motors 26 4.2 Direct Material Costs 27 4.3 Material Pricing Committee 29
05. STEEL 31-35
5.1 Steel for Automobiles 31 5.2 Fluctuating Steel Prices 32 5.3 Effect on Automobile Industry & Role of Automotive Managers 33 5.4 The Project 34
06. FORGINGS & LEAF SPRINGS 36-47
6.1 Forgings 36 6.1.1 What is Forging? 36 6.1.2 Utility of Forgings 37 6.1.3 Forging Users 37 6.1.4 Types of Forging Processes 38
6.2 Leaf Springs 45 6.2.1 Suspension Systems 45 6.2.2 What is Leaf Spring? 45 6.2.3 Types of Leaf Springs 46
07. PROCUREMENT FUNCTION 48-53
7.1 Scientific Procurement 48 7.2 Objectives of Scientific Purchasing 48 7.3 Purchase as a Profit Centre 49 7.4 Procurement at TML, CVBU PUNE 51
08. WORKING 54-83
8.1 SAP 54 8.2 Price Amendment Analysis of Forging Parts 55
8.2.1 Information Aggregation 55 8.2.1.1 Price Increment Workings 55 8.2.1.2 Identification of parts from SAP 57
8.2.2 Information Analysis 59 8.2.2.1 Screening of Materials 59 8.2.2.2 Analysis of Screened Parts 60 8.2.2.3 Price Validity Date Checking 61 8.2.2.4 Identification of Price Amendments 62. 8.2.2.5 Identification of Last Supply Date 63 8.2.2.6 Parts Selection for Price Reduction 64
8.2.3 RFQ Analysis 66 8.3 Spend Analysis of Leaf Springs 68
8.3.1 Business Turnover Analysis of Vendors 68 8.3.3.1 Information Aggregation 68 8.3.1.2 Information Consolidation 70 8.3.1.3 Information Analysis 71
8.3.2 Preparation of Spend Matrix & Analysis 77 8.3.2.1 Information Aggregation 78 8.3.2.2 Identification of Alternate Suppliers 81 8.3.2.3 Identification of Vehicles for respective leaf spring 82 8.3.2.4 Analysis of Suppliers whole business 82
09. LIMITATIONS 84
10. RECOMMENDATIONS 85
11. SUMMARY 86-87
11.1 Price Amendment Analysis of Forging Parts 86 11.2 Spend Analysis of Leaf Springs 86
11.2.1 Turnover analysis 86 11.2.2 Preparation & Analysis of Spend Matrix 87
12. BIBLIOGRAPHY 88
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01.
EXECUTIVE SUMMARY
The project is PRICE AMENDMENT ANALYSIS OF FORGING PARTS &
SPEND ANALYSIS OF LEAF SPRINGS PROCUREMENT carried out at TATA
MOTORS LTD., Pune CVBU.
Forging parts play very vital role in any automobile vehicle. Forged components
are commonly found at points of shock and stress such as wheel spindles, kingpins, axle
beams and shafts, torsion bars, ball studs, idler arms, pitman arms and steering arms.
Another common application is in the power train, where connecting rods, transmission
shafts and gears, differential gears, drive shafts, clutch hubs & universal joints are often
forged. Hence pricing of these parts can affect significantly the automobile industry.
Typically all these items are forged from carbon or alloy steel. Also other materials such
as aluminum and micro alloyed steels are seeing great advances in forged auto and truck
applications. Thus for forging parts steel & its different grades are the most important
constituents.
Leaf springs are the most important constituents for suspensions systems in all
commercial vehicles. Leaf springs are the types of springs still in use & found mostly in
all small, medium &heavy commercial vehicles. a leaf spring can be made from several
leaves stacked on top of each other in several layers, often with systematically shorter
leaves which are again made up of mainly alloy steels. In TML different types of leaf
springs are used in different vehicles manufactured at TML, CVBU Pune
Both the exercises are mainly concerned with the continuously fluctuating steel
prices in the global market. With the fluctuations in the prices it is required to give price
increments to the suppliers or demand for price reductions accordingly taking into
consideration different criterion. As mentioned earlier since steel forms the most
important constituent of all forging parts & leaf springs, for strategic price amendments it
is necessary to carry out Price Amendment Analysis & Spend Analysis exercises which
can be helpful in systematic analysis of parts to be considered for price reduction in case
of forging parts & strategies for future negotiations with the vendors.
The incident of steel price reductions occurred last year rather first time in last
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two decades. Hence for forging parts this analysis is to be carried out for demanding price
reductions. It has been carried out in several steps which can be broadly specified as:
1. Information aggregation
2. Information analysis
Whereas the spend analysis of leaf springs is carried out taking into consideration
probability of suppliers demanding for price increments in view of the recent steel price
increments after last years price moderations. The major steps included in it are:
1. Business Turnover analysis of Leaf Spring Vendors with TML, CVBU Pune
2. Preparation of Spend Matrix & Analysis
3. Identification of alternate vendors for all parts in Spend Matrix
The project is carried out at TATA Motors Limited, Commercial Vehicles
Business Unit Pune, in the period of two months from June 3, 2006 to August 1, 2006.
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ABBREVIATIONS & MEANINGS
ABBREVIATIONS
TML
Tata Motors Limited
CVBU Commercial Vehicles Business Unit
MPC Material Pricing Committee
RFI Request For Information
RFQ Request For Quotation
PO Purchase Order
SOB
Share of Business
MEANINGS
1. Contract
Contract is an agreement having legal recognition between TML &
the Vendor, bounded on both for purchasing particular part, raw material,
subassemblies or assemblies. Following contents are mentioned in any contract:
1. Purchasing Document Type- Identifier allowing differentiation between
the various kinds of purchasing document in the SAP system. On the basis
of the purchasing document type, purchase order, an RFQ and a
scheduling agreement can be distinguished. PMK, PMKO etc. Code
indicates for which plants (P-Pune, J-Jamshedpur etc.) also whether the
procurement is for one time or continuous.
2. Vendor Code & Vendor s name,
3. Purchasing Group - Key for a buyer or a group of buyers, who is/are
responsible for certain purchasing activities.
4. Agreement Start & End Date,
5. Short Description of the material or a part,
6. Material Group,
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7. Price per unit,
8. Target quantity agreed with the vendor,
9. Total value of all materials to be released against the contract etc.
2. Event
An Event is an auction where suppliers submit bids interactively in a
real-time, online marketplace. The most common bidding format used for an
auction is the Reverse Auction where suppliers compete by reducing their bids.
3. RFI
The Request for Information is a supplier questionnaire that helps the
buyer in determining if the supplier is qualified enough to be invited for the event.
Through the information solicited through the RFI, the supplier can be assessed
on several parameters such as manufacturing capabilities, designing and tooling
infrastructure, employee skill level, financial status, existing clientele etc so as to
determine the potential of suppliers to deliver quality goods and services. The RFI
is usually floated when information is required from a new supplier.
4. RFQ
The Request for Quotation is a document describing the items and
services that the buyer wants to purchase as well as the commercial terms, quality
norms and technical specifications for the same. It includes all the information
that the supplier needs so as to prepare accurate quotes for the event.
5. Purchase Order - A request or instruction from a purchasing organization to a
vendor (external supplier) or a plant to deliver a quantity of material or to perform
services at a certain point in time. It is a formal document prepared by the buying
department on behalf of the company to authorize a vendor to supply goods &
services in the quantities, at the time & the price specified & therein the
document. It contains the relevant information to understand clearly the
requirement of supply as per specification.
a. Part no & description of items.
b. Reference to Tata Std/ Indian Std/ International Std
c. Requirement of test certificate
d. Special quality/ test inspection requirement
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e. Delivery terms
f. Payment terms
g. Visit of buyers at supplier s premises if contractually agreed with
customer
h. Special packing & dispatch instructions, if any,
i. Applicability of excise, ST, octoroi, discounts, tooling costs, development
costs, penalty etc.
j. Warrantee clause
k. Special comments, if any
l. For special characteristic items/ processes, the quality requirements like
method of inspection/ any special processes of manufacturing to be
indicated etc.
6. Scheduling Agreement - Outline agreement on the basis of which materials are
procured at a series of predefined points in time over a certain period. It is a
record maintained to keep track of a consignment received in the company until
the goods received against it are accepted & taken into stock (or rejected or
returned back to the supplier)
7. Spend - It is the expenditure of Tata Motors on the manufacturing or operating
input chosen for the event. Spend is determined on the basis of the expenditure
incurred for the input during the past 6-12 months and by extrapolating the same
for the contract period. A cross verification, where required, is done with the
projected vehicle production plan for the year.
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02.
OBJECTIVE & SCOPE
2.1 PRICE AMENDMENT ANALYSIS OF FORGING PARTS
Objective:
Competitive quotations by the suppliers for the purchase of any part or material
generally form the basis of price fixation for that part. However, with passage of time &
changes in business conditions, requests for price increase are received from suppliers.
Requests for price increase may be received on account of the following reasons:
Increase in cost of raw materials & brought out parts
Increase in labor wage bill
Changes in tax structure
Initial failure to estimate the costs correctly & accurately
Added work content.
Renegotiations are not always for price increments. With technological improvements or
softening of general market, buyers may seek to obtain price reductions. Price
negotiations is a very sensitive issue. It is not an ordinary activity. It involves
preparation, presence of minds, knowledge of suppliers strong & weak points etc.
As discussed in the topic of Steel there are continuous fluctuations in the steel
prices over last few years. Most of the times there were price increments. Incidentally
the corresponding price increment are required to be given to the suppliers or price
reductions have to be taken from the vendors for the parts or raw material having steel as
a vital ingredient, depending on the market price of steel. Practically it is not possible to
amend the prices at each fluctuation since these occur at very short intervals. But the
amendments are carried out at some regular intervals or according to the time demands
for which the entire price fluctuations occurred in the meanwhile period passed from the
last amendments till the date are required to be taken into consideration.
Similar price fluctuations were also there in the year 2005. But in mid 2005, from
April 2005 to February 2006 (except August, Sept. 2005), sudden price moderations of
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steel prices occurred & the steel prices fell. (Refer table 2.1). The percentage price
changes during this period are shown in the following table.
Months Steel Coil
Rolled Steel Plate
Rolled Steel Coil Rod Sections
Apr-05 -2.98
-1.20
-3.33
-2.67
-2.69
May-05 -3.39
-2.02
-2.62
-0.42
-1.46
Jun-05 -8.86
-4.53
-8.07
-8.26
-6.60
Jul-05 -9.54
-5.89
-7.70
-2.54
-5.30
Aug-05 2.03
1.98
2.00
1.42
2.05
Sep-05 2.98
1.80
1.64
10.75
11.15
Oct-05 -0.19
-0.59
-0.97
-0.42
0.99
Nov-05 0.00
-1.78
0.00
-2.33
-2.93
Dec-05 -0.58
-2.56
-1.14
-3.25
-0.34
Jan-06 -0.78
0.31
0.82
0.00
1.35
Feb-06 -1.37
-0.46
-0.98
0.22
0.00
Mar-06 2.58
0.77
2.14
3.36
1.66
Table 2.1 Percentage change in Steel Prices from April 05 to March 06
Steel is the most vital & important ingredient of any of the forging part & the
forging parts are one of the most important & vital ingredients of any automotive like
axles, gears, shafts, connecting rods, nuts & bolts & to name the few. Also forging parts
are required to be purchased in the huge quantity. Thus any reduction in the forging parts
can reduce the cost of production on any automotive & finally of an organization as a
whole. Hence taking into consideration above fall in the steel prices it was necessary to
take price reductions for the forging parts from all respective vendors. But there are
certain criteria for deciding for which parts & from which vendors the price reductions
can be obtained or asked. Following are the most important criterion to be checked upon
before asking for a price reduction for a particular forged part from the particular vendor.
1. Validity of the particular Part- It is to be checked whether the part considered is
yet used or not in the vehicles manufactured by TML.
2. Price Validity Date- Date from which the existing price of the part or a material to
be considered is valid or other conditions applicable.
3. Price Amendment History- It is of vital importance to check whether the part to be
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considered had been offered the price increment in the period when the steel
prices were rising in the past. Because the part for which the price increment had
not been offered by TML in the past, the price reduction can also be not
demanded from vendors & has to continue the procurement at the same prices.
4. Last Supply Date- It is necessary to check the last supply date in order to ensure
that the supply of a particular material is still on.
In the following topics working on these entire criterions which also form the
elements of Price Amendment Analysis is mentioned in detail.
All the information is available on the system database (SAP) of Tata Motors which is to
be scrutinized according to the requirement.
Scope:
This exercise is not at all concerned with selection or development of the vendors.
Also it does not cater to design or design changes of the parts. But it is necessary to check
whether there is a change in the previous design of a specific part or assembly to be
procured from the vendor. The exercise is mainly to analyse the previous price
amendments & select the parts to be considered for the price reduction demand. Also the
price reduction to be demanded should be calculated on the basis of per unit price
reduction of steel in the market. The reduction to be demanded is calculated by
considering the input weight required for the part to be considered for price reduction.
There is no need of zero based costing calculations. If needed the task is given to ADD
personnel.
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2.2 SPEND ANALYSIS OF LEAF SPRINGS
TML CVBU, Pune is engaged in manufacturing number of commercial vehicles.
There are about 10 basic models & different variants of each. Leaf spring is an integrated
part of almost each vehicle. Different types of leaf springs are required for different types
of vehicles depending on their design, functioning, working conditions, load carrying
capability etc. Also in some of the vehicles front & the rear leaf springs are of different
types. Some of these different types of leaf springs used in the different vehicles
manufactured by TML, CVBU unit are as follows:
Sr.No. Fitment Leaf Spring Type
1 VICTA/SUMO
AMBULANCE Assy. Rear Spring Parabolic
2 SUMO 4X4
ECONOMY/ ARMY Assy. Rear Spring
3 SPACIO GOLD Assy. Rear Spring Parabolic
4 SUMO 4X4
DOMESTIC TC Assy. Rear Spring
5 TATA MOBILE
FACELIFT(EXPORT)
Assy. Rear Spring Parabolic
6 207 DI AZADI Assy. Rear Spring
7 207 FLAT
LOADBODY Assy. Rear Spring (Parabolic)
8 TATA MOBILE
EGYPT Assy. Rear Spring Parabolic
Table 2.2 Leaf Spring used in different vehicles at Tata Motors, CVBU
Thus there are many different kinds of leaf springs used in all these vehicles
which are to be procured from different vendors. For determining the future strategy for
procurement of the leaf springs, capability of different vendors, SOB determination etc. It
is necessary to have analysis of all purchases & amount spent for leaf springs till now.
This spend analysis is also useful during the price negotiations with the vendors. As
mentioned in 2.1 negotiation requires good initial preparation, knowledge of suppliers
bargaining strength, strong & weak points, presence of mind etc. The spend analysis
exercise carried out here forms the part of the same preparation. It reveals the picture
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about total spends by TML, CVBU Pune on leaf springs aggregate as well as vendor wise
individually each year from 2003 onwards till 1st quarter of this financial year(2006-
2007), SOB of each vendor, trend of performance of each vendor each year, their
competitiveness etc.
2.2.1 Reasons for Spend Analysis
The reasons for doing a spend analysis for the item category is to know the
following:
The financial procurement value or spend for contract period:
For small C class items (i.e. those comprising only 10% of any vehicle s direct
material cost) which go into a large number of vehicles and whose validity (number
required for the vehicle) differs per vehicle, the spend can be estimated on the basis of the
existing one year spend by extrapolating the same for the contract period.
In case of A and B class items while one can initially estimate the spend as done
for C class items; at a later stage when the item category has been finalized and the
RFQ is to be prepared, it is necessary to cross check this information by identifying the
exact vehicle application and the validity and calculate the spend based on the vehicle
production plan for 6-12 months by extrapolating the same for the contract period. In
some cases the production plan may be adjusted to factor in a higher/lower anticipated
demand for a particular vehicle. The MIS PERSONNEL must identify the information
pertaining to validity and application from DENIS i.e. the production management
system of Tata Motors.
Note: The supplier s spend can also be included in the event for some item categories.
For e.g. an event for air bubble bags was conducted to obtain a price reduction on the
same being consumed by TML as well as the Tier 1 supplier and the supplier was asked
to pass on the reduction obtained in the form of the reduction in the final purchase price
for the item being procured from him.
The number of items to be developed for each item category:
This is to be done to assess the development load vis a vis the spend. An ideal
item category is one which covers a huge spend for a small number of items.
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The extent of competition for that item category, i.e. the number of vendors and their
share of business(SOB):
The greater the competition for the category the better is your bargaining power.
Here it can also be determined if potential suppliers need to be identified for the item
category.
Note:
1. Potential suppliers will usually need to be identified if the number of capable
incumbent vendors is below 3. It is advisable to have at least 5 competent suppliers
for the final online bidding process. However, events in the past have been conducted
successfully even with 2 suppliers by using the Jo Jeeta Wohi Sikander strategy
where it is clearly mentioned in the RFQ that the L1 bidder will be awarded 100%
SOB.
2. A mix of new and incumbent vendors reduces the possibility of grouping and
cartelization among existing vendors.
3. Generally the competition will be low for items that are proprietary in nature and
hence it should be assessed at this stage if offline negotiations should be the preferred
option over online negotiations.
The share of business needs to be assessed to determine how the spend is
distributed among the incumbent suppliers for that item category and therefore who are
the key suppliers that should be a part of the event. One also needs to assess what % of
the total turnover of each supplier comes from that item category and therefore the
bargaining power of TML vis a vis each supplier can be assessed. A supplier will be
more interested in offering competitive prices if he has a huge stake in the item category
that is being taken up for the event.
Evaluation of impact on supplies of other item categories:
A list of all the suppliers and the various item categories supplied by them under
the item category class is to be prepared (this can be done using the Pivot Table). This
will help the EVENT SPONSOR and ADD in evaluating the impact on the supplies of
other item categories.
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To determine the e-sourcing solution to be used for the item category:
On the basis of the nature of the item category, the financial spend identified, the
availability of quality suppliers and the kind of service required from a 3rd party for the
event, a decision will be taken by the EVENT SPONSOR pertaining to the e-sourcing
solution to be used for the event.
To determine if an exhibition is to be conducted for the item category
An exhibition is usually required to be conducted if the EVENT SPONSOR and
the ADD personnel need to better understand the development issues pertaining to the
item category being taken up for the event. If a standard item is being taken up for the
event, this step is not required.
To determine if the event requires other plants to be included:
There may be some item categories which are common to the commercial vehicle
plant and the passenger vehicle plant or item categories that are common to the
commercial vehicle plants at different locations. It is important to determine this as for
e.g. it is not advisable to have different suppliers supplying the same item to the car plant
and the commercial vehicles plant at Pune. Because, while it defeats the objective of
vendor rationalization, one would lose also out on the advantage of high bargaining
power possible due to clubbing of purchases.
To do a preliminary technical feasibility analysis:
On the basis of the existing knowledge of the ADD personnel, the item category
list/part list can be pruned further in case significant development issues are identified.
The format in which the SPEND ANALYSIS is to be presented to the EVENT SPONSOR
and the ADD is as under:
Sr. No.
Category Spend for 24 months (Rs. Lakhs)
No. of Items
Major Suppliers SOB
P00680 V63060 A66510 1 Clips 12316708 26
45% 30% 17% M06750 P00680
2 Cable Ties 5149489 6 54% 46%
P64390 P02230 3 Duct 3164926 19
73.50% 26.50%
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J60670 M06750 P02230 4 Washer 3093990 14
19% 45% 12% Table 7.3 SPEND ANALYSIS format
While the above presents the summarized details, for the purpose of enabling the
preliminary technical feasibility analysis it is advisable to present the categorized master
database format for each item category to the ADD personnel as under.
Table 7.4 Master Database Format for each Item Category
Note:
At the end of the spend analysis the EVENT MANAGER should be confident about 2
things:
There is definitely a scope for price reduction
The price reduction will be sustainable at the suppliers end
Scope:
Similar to previous one this exercise is also not at all concerned with selection or
development of the vendors. Also it is does not cater to design or design changes of the
any of the leaf springs. But it is necessary to cross check which type of leaf springs are
used in which types of vehicles & their different variants. The exercise is mainly related
to analysis of spend incurred on all the suppliers of the leaf springs. Also it is concerned
with the analysis of the vendors from their annual reports, balance sheets & related
financial statements. It includes finding out of the total business of any supplier how
much business has been provided by TML & who are the other major business providers
of these suppliers, their SOB in TML etc.
Category
Part No
Descriptn
Cum rcts
Cum rct val
Sob (%) Base rate (Rs)
Qty From to
(Rs) Vendor 1
Vendor 2
Vendor 1
Vendor 2
Clips Small Clip
Plastic Clip
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03.
TATA MOTORS LIMITED
3.1 COMPANY PROFILE
TATA MOTORS LIMITED is India s largest automobile company, with
revenues of Rs.24, 000 crores (USD 5.5 billion) in 2005-06. It is the leader by far in
commercial vehicles in each segment, and the second largest in the passenger vehicles
market with winning products in the compact, midsize car and utility vehicle segments.
The company is the world s fifth largest medium and heavy commercial vehicle
manufacturer.
The company s 22,000 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.
Established in 1945, Tata Motors presence indeed cuts across the length and
breadth of India. Over 3.5 million Tata vehicles ply on Indian roads, since the first
rolled out in 1954. The company s manufacturing base is spread across Jamshedpur,
Pune and Lucknow, supported by a nation-wide dealership, sales, services and spare
parts network comprising about 1,200 touch points.
Tata Motors, the first company from India s engineering sector to be listed in the
New York Stock Exchange (September 2004), has also emerged as a global automotive
company. In 2004, it acquired the Daewoo Commercial Vehicles Company, Korea s
second largest truck maker. The rechristened Tata Daewoo Commercial Vehicles
Company has already begun to launch new products. In 2005, Tata Motors acquired a
21% stake in Hispano Carrocera, a reputed Spanish bus and coach manufacturer, with
an option to acquire the remaining stake as well. Hispano s presence is being expanded
in other markets.
These acquisitions will further extend Tata Motors global footprint, established
through exports since 1961. The company s commercial and passenger vehicles are
already being marketed in several countries in Europe, Africa, the Middle East,
Australia, South East Asia and South Asia. It has assembly operations in Malaysia,
Kenya, Bangladesh, Spain, Ukraine, Russia and Senegal.
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Tata Motors has a global presence with exports of vehicles to several countries in
Europe, Africa, South America, Middle East, Asia and Australia and assembly
operations in Malaysia, Bangladesh, Kenya, South Africa, Ukraine and Russia. The
Company's vehicles are known for their reliability, durability, safety, comfort and value
for money.
The foundation of the company s growth over the last 50 years is a deep
understanding of economic stimuli and customer needs, and the ability to translate them
into customer-desired offerings through leading edge R&D. With 1,400 engineers and
scientists, the company s Engineering Research Centre, established in 1966, has
enabled pioneering technologies and products. It was Tata Motors, which developed the
first indigenously developed Light Commercial Vehicle, India s first Sports Utility
Vehicle and, in 1998, the Tata Indica, India s first fully indigenous passenger car.
Within two years of launch, Tata Indica became India s largest selling car in its segment
The pace of new product development has quickened. In 2005, Tata Motors
created a new segment by launching the Tata Ace, India s first indigenously developed
mini-truck. The years to come will see the introduction of several other innovative
vehicles, all rooted in emerging customer needs. Besides product development, R&D is
also focusing on environment-friendly technologies in emissions and alternative fuels.
Through its subsidiaries, the company is engaged in engineering and automotive
solutions, construction equipment manufacturing, automotive vehicle components
manufacturing and supply chain activities, machine tools and factory automation
solutions, high-precision tooling and plastic and electronic components for automotive
and computer applications, and automotive retailing and service operations.
True to the tradition of the Tata Group, Tata Motors is committed in letter and
spirit to Corporate Social Responsibility. It is a signatory to the United Nations Global
Compact, and is engaged in community and social initiatives on human rights, labor and
environment standards in compliance with the principles of the Global Compact.
Simultaneously, it also plays an active role in community development, serving rural
communities adjacent to its manufacturing locations.
With the foundation of its rich heritage, Tata Motors today is etching a refulgent future.
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3.2 VISION & MISSION
Mission: Drive Business Excellence. The stated goal of
the Tata Group is to secure positions of leadership for its
companies in the industries they operate in. Driving this
ambition is the quest for business excellence across all
enterprises within the group, and one of its chief navigators is
G. Jagannathan, CEO of Tata Quality Management Services.
To foster a long term relationship so as to introduce a broad range of innovative
products & services, that would benefit our customers & other stakeholders.
Vision: To be the Most Sought after Organization for Enabling Tata Group
Companies Achieve Industry Leadership.
Quality of products and Services: A Tata company shall be committed to supplying
goods and services of the highest quality standards, backed by efficient after-sales
service consistent with the requirements of the customers to ensure their total
satisfaction. The quality standards of the company's goods and services should meet the
required national standards, and the company should endeavour to achieve international
standards.
3.3 MILESTONES
It has been a long and accelerated journey for Tata Motors, India's leading
automobile manufacturer. Some significant milestones in the company's journey
towards excellence and leadership:
1945
Tata Engineering and Locomotive Co. Ltd. established to manufacture
locomotives and other engineering products.
1948
Steam road roller introduced in collaboration with Marshall Sons (UK).
1954
Collaboration with Daimler Benz AG, West Germany, for manufacture of
medium commercial vehicles. The first vehicle rolled out within 6 months
of the contract.
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1959
Research and Development Centre set up at Jamshedpur.
1961
Exports begin with the first truck being shipped to Ceylon, now Sri Lanka.
1966
Setting up of the Engineering Research Centre at Pune to provide impetus
to automobile Research and Development.
1971
Introduction of DI engines.
1977
First commercial vehicle manufactured in Pune.
1983
Manufacture of Heavy Commercial Vehicle commences.
1985
First hydraulic excavator produced with Hitachi collaboration.
1986
Production of first light commercial vehicle, Tata 407, indigenously
designed, followed by Tata 608.
1989
Introduction of the Tatamobile 206 - 3rd LCV model.
1991
Launch of the 1st indigenous passenger car Tata Sierra.
TAC 20 crane produced.
One millionth vehicle rolled out.
1992
Launch of the Tata Estate.
1993
Joint venture agreement signed with Cummins Engine Co. Inc. for the
manufacture of high horsepower and emission friendly diesel engines.
1994
Launch of Tata Sumo - the multi utility vehicle.
Launch of LPT 709 - a full forward control, light commercial vehicle.
Joint venture agreement signed with M/s Daimler - Benz / Mercedes -
Benz for manufacture of Mercedes Benz passenger cars in India.
Joint venture agreement signed with Tata Holset Ltd., UK for
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June-July 2006 -18-
manufacturing turbochargers to be used on Cummins engines.
1995
Mercedes Benz car E220 launched.
1996
Tata Sumo deluxe launched.
1997
Tata Sierra Turbo launched.
100,000th Tata Sumo rolled out.
1998
Tata Safari - India's first sports utility vehicle launched.
2 millionth vehicle rolled out.
Indica, India's first fully indigenous passenger car launched.
1999
115,000 bookings for Indica registered against full payment within a
week.
Commercial production of Indica commences in full swing.
2000
First consignment of 160 Indicas shipped to Malta.
Indica with Bharat Stage 2 (Euro II) compliant diesel engine launched.
Utility vehicles with Bharat 2 (Euro II) compliant engine launched.
Indica 2000 (Euro II) with multi point fuel injection petrol engine
launched.
Launch of CNG buses.
Launch of 1109 vehicle - Intermediate commercial vehicle.
2001
Indica V2 launched - 2nd generation Indica.
100,000th Indica wheeled out.
Launch of CNG Indica.
Launch of the Tata Safari EX
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June-July 2006 -19-
Indica V2 becomes India's number one car in its segment.
Exits joint venture with Daimler Chrysler.
2002
Unveiling of the Tata Sedan at Auto Expo 2002.
Petrol version of Indica V2 launched.
Launch of the EX series in Commercial vehicles.
Launch of the Tata 207 DI.
2,00,000th Indica rolled out.
5,00,000th passenger vehicle rolled out.
Launch of the Tata Sumo'+' Series
Launch of the Tata Indigo.
Tata Engineering signed a product agreement with MG Rover of the UK.
2003
Launch of the Tata Safari Limited Edition.
The Tata Indigo Station Wagon unveiled at the Geneva Motor Show.
On 29th July, J. R. D. Tata's birth anniversary, Tata Engineering becomes
Tata Motors Limited.
3 millionth vehicle produced.
First CityRover rolled out
135 PS Tata Safari EXi Petrol launched
Tata SFC 407 EX Turbo launched
2004
Tata Motors unveils new product range at Auto Expo '04.
New Tata Indica V2 launched
Tata Motors and Daewoo Commercial Vehicle Co. Ltd. sign investment
agreement
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June-July 2006 -20-
Indigo Advent unveiled at Geneva Motor Show
Tata Motors completes acquisition of Daewoo Commercial Vehicle
Company
Tata LPT 909 EX launched
Tata Daewoo Commercial Vehicle Co. Ltd. (TDCV) launches the heavy
duty truck 'NOVUS' , in Korea
Sumo Victa launched
Indigo Marina launched
Tata Motors lists on the NYSE
2005
Tata Motors rolls out its 500,000th Passenger Vehicle
The Tata Xover unveiled at the 75th Geneva Motor Show
Branded buses and coaches - Starbus and Globus - launched
Tata Motors acquires 21% stake in Hispano Carrocera SA, Spanish bus
manufacturing Company
Tata Ace, India's first mini truck launched
Tata Motors wins JRD QV award for business excellence.
The power packed Safari Dicor is launched
Introduction of Indigo SX series - luxury variant of Tata Indigo
Tata Motors launches Indica V2 Turbo Diesel.
One millionth passenger car produced and sold
Inauguration of new factory at Jamshedpur for Novus
Tata TL 4X4 , India 's first Sports Utility Truck (SUT) is launched
Launch of Tata Novus
Launch of Novus range of medium trucks in Korea , by Tata Daewoo
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June-July 2006 -21-
Commercial Vehicle Co. (TDCV)
2006
Tata Motors unveils new long wheel base premium Indigo & X-over
concept at Auto Expo 2006
Indica V2 Xeta launched
Passenger Vehicle sales in India cross one-million mark
Tata Motors and Marco polo, Brazil, announce joint venture to
manufacture fully built buses & coaches for India & markets abroad
3.4 PUNE PLANT
Tata Motors owes its leading position in the Indian automobile industry to its
strong focus on indigenisation. This focus has driven the Company to set up world-class
manufacturing units with state-of-the-art technology. Every stage of product evolution-
design, development, manufacturing, assembly and quality control, is carried out
meticulously. Company s manufacturing plants are situated at Jamshedpur in the East,
Pune in the West and Lucknow in the North.
The Pune unit is spread over two geographical regions- Pimpri and Chinchwad &
has a combined area of around 510 acres. It was established in 1966 and has a
Production Engineering Division, which has one of the most versatile tool making
facilities in the Indian sub-continent. It houses a Vehicle manufacturing complex which
is one of the most integrated automotive manufacturing centers in the country
producing a large variety of individual items and aggregates. It is engaged in the design
and manufacture of sophisticated press tools, jigs, fixtures, gauges, metal pattern &
special tools, as well as models for the development of new ranges of automobile
products. Its capabilities have enabled Tata Motors to introduce new products and
improve existing ones without resorting to imports of dies or fixtures.
Over the years, this division has developed expertise in design and manufacture of
automated dies, fixtures and welding equipment. Its large design group is fully
conversant with state-of-the-art CAD facilities and manufacturing facilities comprising of
light and heavy CNC machine shops, jigs boring room, plastic template shop, wood
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pattern and model pattern shop, five axis precision machine tools and laser control
machines. To cope with such a diverse range, four assembly lines have been established,
one each for MCVs and HCVs, LCVs, Utility vehicles and one for Passenger Cars
(Indica and Indigo).
The Passenger Car Division in 'K' block executes the entire process of car
manufacture over five shops - the engine shop, the transmission shop, press and body
shops, paint shop and the trim and final assembly shop. The shops are fully automated
ensuring that there is minimal chance for error in the manufacturing processes.
After the car is completely assembled, it goes through several checks like wheel
alignment, sideslip test, brake test, shower test, and a short test run before it is ready for
dispatch. All systems such as materials management, maintenance and other activities are
computerized, enabling smooth operations and minimum inventory needs.
The Electronics Division is engaged in the production of a wide variety of
Machine Tool Controllers, PLCs, Test rig instrumentation, Servomotors, Proximity
Switches. In addition, it has developed a number of components such as flashers, horns,
timers that are used in Tata Motors' vehicles.
Industry experts rate the fully automated Foundries at Chinchwad and Maval
among the best, worldwide. The Iron Foundry produces 30,000 Tons of high precision
castings per year at Chinchwad and Maval Foundry produces 12000 Tons per year of
spheroidal Iron castings. These include Cylinder Blocks, Cylinder Heads, Gear Box
Housing, etc. To dispense with the need for outsourcing, an Aluminium Foundry with an
annual capacity of 1200 Tonnes has also been established.
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3.5 COMMERCIAL VEHICLES BY TATA MOTORS
Tata Motors is India's largest manufacturer of commercial
vehicles, with a 59-per cent market share, and it ranks among
the top six manufacturers of medium and heavy commercial
vehicles in the world. The company manufactures a wide range
of commercial vehicles, the most prominent of which are
featured here.
The company has over 130 models of light, medium and heavy
commercial vehicles, ranging from two tonnes to 40 tonnes,
buses ranging from 12 seaters to 60 seaters, tippers, special
purpose vehicles, off-road vehicles and defense vehicles.
Light commercial vehicles
Tata 207 DI single cab: 497 SP, diesel and direct injection engine, vacuum-
assisted hydraulic dual-circuit breaks with tandem master cylinder.
Tata 207 DI crew cab: 497 SP, diesel, direct-injection engine with vacuum-
assisted hydraulic dual-circuit breaks with tandem master cylinder.
SFC 407 EX turbo truck: 497 SP turbo (India 2000)
engine, vacuum-assisted hydraulic dual-circuit breaks
with tandem master cylinder.
SFC 407 turbo truck: 497 SP turbo engine with
vacuum-assisted hydraulic dual-circuit breaks with tandem master cylinder;
available in cab load-body, cab chassis, truck cowl and bus cowl versions.
SFC 709 E truck: 497 D-four cylinder engine with vacuum-assisted hydraulic
dual-circuit breaks with tandem master cylinder; available in cab chassis and cab
load-body versions.
LPT 709 E truck: 497 D-four cylinder engine with dual-circuit full air S-Cam
brakes; available in cab chassis and cab load-body versions.
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SFC 709 E aerial lift turbo truck: 497-turbo engine with vacuum-assisted
hydraulic dual-circuit with automatic brake adjuster.
LPT 407 turbo truck: 497 SP turbo engine with vacuum-assisted hydraulic dual-
circuit with automatic brake adjuster; available in cab load-body, cab chassis
version.
Intermediate commercial vehicles
LPT 1109 turbo truck: 497 turbo four-cylinder engine with
dual-circuit full air S-Cam brakes.
LP 1109 turbo truck: 497 turbo four-cylinder engine with
dual-circuit full air S-Cam brakes.
Medium and heavy commercial vehicles
LPT 1615 TC turbo heavy-duty truck: Cummins 6 BT 5.9 TC water-cooled,
turbo-charged diesel engine with 6 inline cylinders, dual-circuit full air S-CAM
service brakes.
SE 1613 TC turbo truck: Cummins 6 BT 5.9 TC water-cooled, turbo-charged
diesel engine. With 6 inline cylinders and dual-circuit full air S-CAM service
brakes.
LPT 1613 TC turbo truck: Cummins 6 BT 5.9 TC
water-cooled, turbo-charged diesel engine with 6 inline
cylinders and dual-circuit full air S-CAM service
brakes.
LPT 2515 TC turbo truck: Cummins 6 BT 5.9 TC water-cooled, turbo-charged
inter cooled diesel engine with 6 inline cylinders and dual-circuit full air S-CAM
service brakes.
LPT 2516 TC: With Cummins 6 BT AA 5.9 TC water-cooled, turbo-charged,
inter-cooled diesel engine with 6 inline cylinders and dual-circuit full air S-CAM
service brakes.
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June-July 2006 -25-
Buses
SFC 407 turbo mini- bus: 497 SP turbo water-cooled direct injection diesel
engine with vacuum-assisted dual circuit hydraulic with tandem master cylinder.
LPO 1510 CGS bus (CNG bus): 6B 5.9 CNG NA
engine with 6 inline cylinders, fully duplicated full air S-
CAM brake system.
LP / LPO 1510 Bharat stage II bus: 697 NA engine
with 6 inline cylinders, fully duplicated full air S-CAM
brake system.
LPO 1616 TC inter luxury Bharat stage II bus: With Cummins 6 BT AA 5.9
TC water-cooled, turbo-charged, inter-cooled diesel engine and 6 inline cylinders
and dual-circuit full air S-CAM service brakes.
Defense vehicles
Tata 407 (4x4) soft-top troop carrier: 4 SP turbo engines with vacuum-assisted
independent hydraulic brakes.
Tata 407 / (4x2) hard-top troop carrier: 4 SP TC engine with vacuum-assisted
hydraulic dual circuit breaks and tandem master cylinder (exhaust brake optional).
Tata SD 1015 TC (4x4): Cummins 6 BT engine with air
over hydraulic breaks with independent hydraulic circuit
for front and rear.
Tata LPTA 1621 TC (6x6): Cummins 6 BT engine with
dual circuit full air S-CAM brakes and provision for trailer brakes.
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June-July 2006 -26-
04.
INTRODUCTION & BACKGROUND
4.1 COST EROSION
The people at Tata Engineering do not fancy the phrase cost cutting , for no other
reason than that they see it as inadequate, even misleading in their context. Cost erosion
is the preferred terminology at India s largest automotive company, simply because it
better captures the breakthrough exercise that has shaved more than Rs. 600 crore off
Tata Engineering s expenses over the last two years. What s cut can grow back; what s
eroded is gone forever.
The cost-erosion initiative, which began in April 2000, is arguably the most
important element in a remarkable revival that has seen Tata Engineering recover from a
loss of Rs. 500 crore in the year ended March 2001 to a profit of Rs. 28 crore in the first
quarter of 2002-03. A quality improvement program based on the Six Sigma model, and
the developments of new products are the other components of this revival, but it is in
cost reduction that the gains have come thickest and fastest.
Prakash M. Telang, senior vice president (manufacturing) (currently President),
was designated the cost-erosion champion and put in charge of the entire initiative. Four
specific areas were identified as the target zones of the cost-erosion fusillade that Tata
Engineering launched in April 2000.
Direct material costs (which constitute roughly 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).
This project is mainly focused on direct material costs as forging parts & leaf
springs both are the direct materials (being the part of the vehicle) & catered by Material
Pricing Committee Department. The department is responsible for almost all the direct
materials & their costs. Following is given the brief about how cost erosion has been
implemented for direct materials & the work done by MPC department regarding the
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same under Sr. Manager (now Asst. General Manager) Mr. Atul Renavikar.
4.2 DIRECT MATERIAL COSTS
Since materials accounted for a bulk of the company s expenses, getting the
initiative on track here was crucial. It started with Ravi Kant, Tata Motor s executive
director (commercial vehicles division), assembling a team of 23 young achievers
(average age 30) in April 2000 and giving them three days to come up with ideas on how
to reduce direct materials costs by 10 per cent a year for 2000-2001 and 2001-2002.
Atul P. Renavikar, currently the Asst. General Manager (e-procurement,
Materials Pricing Committee), was one of the young guns picked for the exercise. "We
burnt plenty of midnight oil and after three days we were ready with ideas and
proposals," he says. "We had a road map." Mr. Kant liked the group s ideas enough to
give the go-ahead for a pilot cost-reduction project.
The team, comprising engineers, managers and shop-floor workers, was pared
down to eight members for the pilot project, which essentially involved exploring ways
to minimize Tata Engineering s costs on vehicle parts supplied by vendors from across
the country.
The team started with three major models, one each from the light commercial
vehicle, medium and heavy commercial vehicle, and passenger car families. This made
sense because the cost-reduction possibilities identified with these could be applied to a
whole lot of variants in the three vehicle categories
"We took apart each of these models, down to the last nut and bolt," says Mr.
Renavikar. "This helped us improve our own understanding of these vehicles and we
compared them with some benchmark vehicles, our own and the competition s." This
was followed by analyses of various kinds: zero-based costing (building the cost of the
products from scratch, from the value of the components that go into its making),
purchase-rate analysis, rate-to-weight study and value-for-money scrutiny.
The information thus gleaned came in handy when the team began renegotiating
rates with vendors, but there was more dissection before that happened. A value-chain
analysis revealed the scope for reducing incremental taxation. In the automobile
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industry, value additions go through different stages and there is taxation at every stage.
"We reduced the taxation by integrating some of these value additions at the suppliers
end," says Mr. Renavikar.
Other approaches followed:
Value engineering
the system of identifying alternative materials, designs,
technologies and processes was reinforced.
SWOT (strengths, weaknesses, opportunities, threats) analysis of vendors
the
team worked out a strategy to maximize Tata Engineering s equation with
vendors by tracking the relationship between its bargaining power and its
purchasing value.
The single-source advantage
moving from multiple vendors to a single
vendor.
Reducing imports by indigenizing wherever possible.
Suppliers
looking for alternate suppliers if regular vendors could not, or
would not, reduce costs.
E-procurement
the reverse-auction process, where vendors bid online to
supply requirements.
Once the pilot project was completed, the initiative in reducing direct material
costs was spread across the company. A total of 16 cross-functional teams went to work
on nibbling away at a total figure of about Rs. 4,000 crore. Each team was headed by a
leader, who was typically about 35 years old. The value teams were organized around
the aggregates: engine, gearbox, axle, etc. The commodity teams considered things
such as electrical parts, tyres, air-conditioners, seats, plastic pieces, etc.
Additionally, line-of-business teams were established. Earlier Tata Motor had
one structure to cater to all its vehicle classes, which meant there wasn't enough focus on
different automobile families. Now the company structured its marketing along different
lines of business. Price increases were factored into the overall cost-erosion venture.
"This meant that any cost increase in our products had to be negated by cutting more
costs elsewhere," says Mr. Renavikar.
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The results
and the savings
were quick to show. Direct material costs went
down by about Rs. 200 crore in 2000-01 and by Rs. 168 crore the following year.
The project is the part of the same cost erosion program which
is an ongoing & continuous process. It is mainly concerned with the
forging parts & leaf springs. The prices of both these items are
dependent on steel prices in the market which are highly fluctuating.
Since forged parts constitute the major part of any vehicle, the price
fluctuations in these items can affect the cost of production very
significantly. The exercise carried out here is for the purpose of strategic tackling with
this instability & maintaining stability in the cost of production.
Net Raw Material consumption inclusive of processing charges increased by
18.6% to Rs.14,632.65 crores in 2005-06, from Rs.12,341.14 crores in 2004-05. This
was largely a result of high steel prices during the first quarter of the year and sharp
increase in the prices of other commodities like aluminium, copper and rubber.
However, the Company managed to maintain its ratio of net raw material consumption
to net turnover at 70% in 2005-06 on account of the on going cost reduction programme.
As a part of the cost reduction programme, the Company initiated global sourcing,
vendor rationalization and value engineering during 2005-06.
Let s have a look at brief introduction & functioning of Material Pricing
Committee Dept. at Tata Motors, CVBU Pune where this project has been carried out.
4.3 MATERIAL PRICING COMMITTEE (MPC)
Traditionally, purchasing was regarded as one of the activities of the production
management. Now it is being considered too specialized activity to be treated as line
function. Many a progressive managements have already realized that in lieu of
changing business conditions, growing competition, continual escalation in the cost of
inputs, purchasing must be given status equal to that of other major functions (i.e.
production, sales & finance).
Traditionally, the prices of procured items at Tata Motors were being finalized by
the Material Pricing Committee (MPC) using the knowledge of the manufacturing
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process and zero based costing followed up with negotiations with the vendors. While
this was a time tested procedure, there was a growing need to rationalize the vendor base
as over the years the vendor base had become voluminous. Also there was a cost
reduction and quality enhancement drive in progress as mentioned before.
The MPC department is mainly concerned with the following functions:
1. Vendor Management
2. New Vendors Development
3. Item Development
4. Tooling Assistance to Vendors
5. Procurement from Suppliers
6. Monitor & Improve Vendor Performance
All above mentioned functions are performed in assistance with each other by
different divisions which include ADD (Ancillary Development Dept), Auto Materials,
ERC, MPC, SPD, QA etc. Thus procurement at Tata Motors not just a commercial
activity, but is a techno-commercial activity. More & more technical persons are being
inducted into the department. These efforts have resulted in bringing the complete
professionalism in the personnel & hence to the department as well.
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05.
STEEL
As mentioned above forging parts & leaf springs required for the automobiles
form very significant parts of the vehicles & their prices mainly depend on the steel
prices in the market. Thus study & analysis of the trend of the steel prices in the recent
past & in the coming future is of vital importance in this context before proceeding
further.
5.1 STEEL FOR AUTOMOBILES:
Steel has been the primary raw material for vehicle production since the invention
of the automobile. The choice of steel is not because it was the all-around perfect
material, but rather because it was better than other options. Imagine what would have
happened if early automotive industry pioneers had more material options to chose from
for the mass production of cars. Steel would not have been the obvious choice. Its
drawbacks include:
Steel is difficult to form or press
Steel is heavy
Steel needs elaborate paint processes to prevent rust.
Despite its deficiencies, steel continues to maintain several advantages over plastics:
Steel enjoys lower material costs
Steel can provide faster production rates
Steel is more easily painted than plastics and provides a superior surface finish
Steel is easily recycled. In fact, most mini-mill steel producers around the globe
rely on recycled scrap materials as the primary input for steel production.
Over time, with the aid of computer modeling to create optimum structures, steel
has been able to respond to the threat of aluminum. The result has been a decrease in steel
sheet thickness, which decreases part weight and maintains strength.
Steel is also cost efficient when the combination of price per pound, strength,
stiffness and resistance against fatigue are factored in. Steel has maintained its position in
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body and chassis applications where stiffness and strength of steel are necessary, by
applying steel in well-engineered shapes for stress-bearing parts.
5.2 FLUCTUATING STEEL PRICES:
Steel company profitability has improved dramatically over the past few years,
and perhaps the most significant reason is because of the dramatic increase of hot-rolled
steel prices, which is the industry benchmark for pricing. Hot-rolled steel prices have
moderated slightly in 2005 to around $600/ton from the highs reached in September 2004
of $756/ton. On a historical basis, however, these prices remain high.
The following data reveals the buoyant price fluctuations of steel since January
2005 till April 2006 (shown in the graphical format at the end of the topic for better
visualisation)..
World Steel
Prices
US $/tonne
Hot
Rolled
Steel Coil
Hot
Rolled
Steel
Plate
Cold
Rolled
Steel
Coil
Steel
Wire
Rod
Medium
Steel
Sections
Jan 2005 650 756 746 494 651
Feb 2005 635 740 739 489 634
Mar 2005 638 753 750 487 632
Apr 2005 619 744 725 474 615
May 2005 598 729 706 472 606
Jun 2005 545 696 649 433 566
Jul 2005 493 655 599 422 536
Aug 2005 503 668 611 428 547
Sep 2005 518 680 621 474 608
Oct 2005 517 676 615 472 614
Nov 2005 517 664 615 461 596
Dec 2005 514 647 608 446 594
Jan 2006 510 649 613 446 602
Feb 2006 503 646 607 447 602
Mar 2006 516 651 620 462 612
Apr 2006 538 670 636 460 631
Table 5.1 Steel Price Fluctuations
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All steel prices are in $/metric tonne. Steel price information updated July 2006.
Source: MEPS Steel Prices On-line. To obtain current steel prices including forecasts,
please visit http://www.meps.co.uk/world-price.htm.
5.3 EFFECT ON AUTOMOBILE INDUSTRY & ROLE OF AUTOMOTIVE
MANAGERS:
The automobile industry is one of the biggest consumers of steel products &
growing at a CAGR of around 17%. The growth curve of India Auto Inc. has been on an
upswing for the past few years due to higher disposable income, demographic change,
soft interest loan, better road connectivity. Continuing the upswing, the sector posted an
impressive 13.5 per cent growth in 2005-06, says the SIAM.
Year 2002-03 2003-04 2004-05 2005-06
In Number 6.2 7.24 8.4 Mn 9.7 Mn
Table 5.2 Production Trends in Automobiles (In No.s)
Source: SIAM
Demand for automobiles is likely to grow at 13% over the next year. Around 8-9% of the
steel produced is consumed by the automobile sector accounting for 2.8 mn tones. The
overall effect of increased steel prices is that automotive OEMs and suppliers must find
ways to better manage steel costs. Automotive managers should focus on two things to
manage steel input costs, benchmarking and complexity reduction.
Benchmarking: There is still a high degree of secrecy involved in the actual pricing of
steel. Other non-ferrous metals have futures markets that offer OEMs immediate price
transparency when determining their commodity purchases. While steel spot prices are
extremely volatile, what OEMs actually pay and what producers actually receive is
largely determined by a pre-defined contract. These contracts are unique to each steel
supplier and customer. The actual price that an OEM pays to procure steel, therefore, is a
blend of various contract prices along with spot prices. A variety of analytical modeling
techniques can be used to determine the best-in-class price for particular grades of steel
for a given specification. These tools are important as steel prices appear to remain high
into the foreseeable future.
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5.4 THE PROJECT:
This project mainly caters to forging parts & leaf springs used in the automobiles
manufactured at TATA Motors as mentioned above. It concerns about the steel price
fluctuation since 2005 & its effect on these constituents. For forging parts taking into
consideration the slight moderations in the steel prices in 2005, the exercise has been
carried out for some of the suppliers of forging parts to identify the parts for which the
price reduction has to be taken. For that it also takes into consideration the previous price
amendments of the required concerned parts.
This is not a one time project & the same exercise has to be carried out whenever
there are price amendments to be observed for any category of materials or parts. Thus it
is also the part of regular work of the MPC department.
For leaf springs, the exercise of spend analysis has been carried out. The spend
analysis mainly reveals the spend on different types of leaf springs & their vendors,
SOBs of different vendors etc. It also gives the idea about competency level of different
vendors thro Pareto analysis. The objective behind preparing this spend analysis is to
decide the strategy for future purchases & negotiations with these suppliers.
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June-July 2006 -35-
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80
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-05
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5A
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5Ju
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-06
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Mo
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Price (US $/tonne)
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06.
FORGINGS & LEAF SPRINGS
6.1 FORGINGS
6.1.1 What is Forging?
Forging is the process by which metal is heated and is shaped by plastic
deformation by suitably applying compressive force. Usually the compressive force is in
the form of hammer blows using a power hammer or a press. It is a manufacturing
process where metal is pressed, pounded or squeezed under great pressure into high
strength parts known as forgings. The process is normally (but not always) performed hot
by preheating the metal to a desired temperature before it is worked. It is important to
note that the forging process is entirely different from the casting (or foundry) process, as
metal used to make forged parts is never melted and poured (as in the casting process).
Forging refines the grain structure and improves physical properties of the metal.
With proper design, the grain flow can be oriented in the direction of principal stresses
encountered in actual use. Grain flow is the direction of the pattern that the crystals take
during plastic deformation. Physical properties (such as strength, ductility and toughness)
are much better in a forging than in the base metal, which has, crystals randomly
oriented.
Forgings are consistent from piece to piece, without any of the porosity, voids,
inclusions and other defects. Thus, finishing operations such as machining do not expose
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voids, because there aren't any. Also coating operations such as plating or painting are
straightforward due to a good surface, which needs very little preparation.
6.1.2 Utility of Forgings
Forgings yield parts that have high strength to weight ratio-thus are often used in
the design of aircraft frame members. The forging process can create parts that are
stronger than those manufactured by any other metalworking process. This is why
forgings are almost always used where reliability and human safety are critical. But you'll
rarely see forgings, as they are normally component parts contained inside assembled
items such a airplanes, automobiles, tractors, ships, oil drilling equipment, engines,
missiles and all kinds of capital equipment - to name a few.
A Forged metal can result in the following
Increase length, decrease cross-section, called drawing out the metal.
Decrease length, increase cross-section, called upsetting the metal.
Change length, change cross-section, by squeezing in closed impression dies. This
results in favorable grain flow for strong parts
6.1.3 Users of Forgings
Forged parts vary in size, shape and sophistication - from the hammer and wrench
in toolbox to close tolerance precision components in the Boeing 747 and NASA space
shuttle. In fact, over 18,000 forgings are contained in a 747. Some of the largest customer
markets include: aerospace, national defense, automotive, and agriculture, construction,
mining, material handling, and general industrial equipment. Even the dies themselves
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that make forgings (& other metal and plastic parts) are forged.
Forgings in Automotives: The characteristics of forged parts strength, reliability and
economy are what makes them ideal for vital automotive and truck applications. Forged
components are commonly found at points of shock and stress such as wheel spindles,
kingpins, axle beams and shafts, torsion bars, ball studs, idler arms, pitman arms and
steering arms. Another common application is in the powertrain, where connecting rods,
transmission shafts and gears, differential gears, drive shafts, clutch hubs & universal
joints are often forged. Although typically forged from carbon or alloy steel, other
materials such as aluminum and microalloyed steels are seeing great advances in forged
auto and truck applications.
6.1.4 Types of Forging Processes
Impression Die Forging:
Impression die forging pounds or presses metal between two dies (called tooling)
that contain a precut profile of the desired part. Parts from a few ounces to 60,000 lbs.
can be made using this process. Some of the smaller parts are actually forged cold.
Graphical depiction of process steps:
Animated Sequence
Video
Impression-die forging of steel, aluminum, titanium and other alloys can produce
an almost limitless variety of 3-D shapes that range in weight from mere ounces up to
more than 25 tons. Impression-die forgings are routinely produced on hydraulic presses,
mechanical presses and hammers, with capacities up to 50,000 tons, 20,000 tons and
50,000 lbs. respectively. Part geometry's range from some of the easiest to forge simple
spherical shapes, block-like rectangular solids, and disc-like configurations to the most
intricate components with thin and long sections that incorporate thin webs and relatively
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high vertical projections like ribs and bosses. Although many parts are generally
symmetrical, others incorporate all sorts of design elements (flanges, protrusions, holes,
cavities, pockets, etc.) that combine to make the forging very non-symmetrical. In
addition, parts can be bent or curved in one or several planes, whether they are basically
longitudinal, equidimensional or flat. Most engineering metals and alloys can be forged
via conventional impression-die processes, among them: carbon and alloy steels, tool
steels, and stainless, aluminum and copper alloys, and certain titanium alloys.
Cold Forging:
Most forging is done as hot work, at temperatures up to 2300 degrees F, however,
a variation of impression die forging is cold forging. Cold forging encompasses many
processes -- bending, cold drawing, cold heading, coining, extrusions and more, to yield a
diverse range of part shapes. The temperature of metals being cold forged may range
from room temperature to several hundred degrees.
Graphical depiction of process steps:
1. Forward Extrusion 2. Backward Extrusion 3. Upsetting or Heading
Cold forging encompasses many processes bending, cold drawing, cold heading,
coining, extrusion, punching, thread rolling and more to yield a diverse range of part
shapes. These include various shaft-like components, cup-shaped geometry's, hollow
parts with stems and shafts, all kinds of upset (headed) and bent configurations, as well as
combinations. Often chosen for integral design features such as built-in flanges and
bosses, cold forgings are frequently used in automotive steering and suspension parts,
antilock-braking systems, hardware, defense components, and other applications where
high strength, close tolerances and volume production make them an economical choice.
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Open Die Forging:
Open die forging is performed between flat dies with no precut profiles is the dies.
Movement of the work piece is the key to this method. Larger parts over 200,000 lbs. and
80 feet in length can be hammered or pressed into shape this way.
Graphical depiction of process steps:
Graphical depiction of process steps:
Shafts:
1. Starting stock, held by manipulator.
2. Open-die forging.
3. Progressive forging.
4. Lathe turning to near net-shape.
Discs:
1. Starting stock.
2. Preliminary upsetting.
3. Progressive upsetting/ forging to disc dimensions.
4. Pierced for saddle/mandrel
ring hollow "sleeve type" preform.
Saddle/Mandrel Rings
1. Preform mounted on saddle/mandrel.
2. Metal displacement-reduce preform wall thickness to increase diameter.
3. Progressive reduction of wall thickness to produce ring dimensions.
4. Matching to near net shape.
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Hollow "Sleeve Type" Forging
1. Punched or trepanned disc on tapered draw bar.
2. Progressive reduction of outside diameter (inside diameter remains constant) increases overall length of sleeve.
Animated Sequence
Video
Open-die forging comprises many process variations, permitting an extremely
broad range of shapes and sizes to be produced. In addition to round, square, rectangular,
hexagonal bars and other basic shapes, open-die processes can produce:
Step shafts solid shafts (spindles or rotors) whose diameter increases or decreases
(steps down) at multiple locations along the longitudinal axis.
Hollows cylindrical in shape, usually with length much greater than the diameter
of the part. Length, wall thickness, ID and OD can be varied as needed.
Ring-like parts can resemble washers or approach hollow cylinders in shape,
depending on the height/wall thickness ratio.
Contour-formed metal shells like pressure vessels, which may incorporate
extruded nozzles and other design features.
Seamless Rolled Ring Forging:
Seamless rolled ring forging is typically performed by punching a hole in a thick, round
piece of metal (creating a donut shape), and then rolling and squeezing (or in some cases,
pounding) the donut into a thin ring. Ring diameters can be anywhere from a few inches
to 30 feet.
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Graphical depiction of process steps:
1. The ring rolling process typically
begins with upsetting of the starting
stock on flat dies at its plastic
deformation temperature -
in the
case of grade 1020 steel,
approximately 2200 degrees
Fahrenheit.
2. Piercing involves forcing a
punch into the hot upset stock
causing metal to be displaced
radially, as shown by the
illustration.
3. A subsequent operation,
shearing, serves to remove the
small punchout ...
4. ...producing a completed hole
through the stock, which is now
ready for the ring rolling
operation itself. At this point the
stock is called a preform.
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5. The doughnut-shaped preform is
slipped over the ID roll shown here
from an "above" view.
6. A side view of the ring mill and
preform workpiece, which
squeezes it against the OD roll
which imparts rotary action...
7. ...resulting in a thinning of the section and correspondence increase
in the diameter of the ring. Once off the ring mill, the ring is then ready
for secondary operations such as close tolerance sizing, parting, heat
treatment and test/inspection.
Animated Sequence
Video
Rings forged by the seamless ring rolling process can weigh < 1 lb up to 350,000
lbs., while O.D. s range from just a few inches up to 30-ft. in diameter. Seamless ring
configurations can be flat (like a washer), or feature higher vertical walls (approximating
a hollow cylindrical section). Heights of rolled rings range from less than an inch up to
more than 9 ft. Depending on the equipment utilized, wall-thickness/height ratios of rings
typically range from 1:16 up to 16:1.
Even though basic shapes with rectangular cross-sections are the norm, rings
featuring complex, functional cross- sections can be forged to meet virtually any design
requirements. A key advantage to contoured rings is a significant reduction in machining
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operations. Custom-contoured rings can result in cost-saving part consolidations.
High tangential strength and ductility make forged rings well-suited for torque-
and pressure-resistant components, such as gears, engine bearings, wheel bearings,
couplings, rotor spacers, sealed discs and cases, flanges. Materials include not only
carbon and alloy steels, but also non-ferrous alloys of aluminum, copper and titanium, as
well as nickel-base alloys.
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6.2 LEAF SPRINGS
6.2.1 Suspension Systems
At the core of every suspension system are the springs. Suspension systems utilize
three types of springs-coil, leaf (both mono and multi-leaf) and torsion bar. This is the
component that maintains proper riding height while absorbing all levels of shock force.
If worn out or damaged, other elements of the suspension will shift out of their correct
positions, subjecting them to increased wear which they are not designed for. This will
severely affect the vehicle's ride and handling.
Larger, heavier vehicles require stiffer springs than a lightweight vehicle. Spring
rate is classified as the amount of deflection displayed under a specific load. In reference
to the law of physics, a weight or force applied to a spring will compress it proportionally
to the force applied. The spring will return to its original position once the force is
removed, if not overloaded.
6.2.2 What is Leaf Spring?
Leaf springs are the first type of spring used on vehicle suspensions and are still
in use today, however, they are more commonly found on light duty trucks, SUVs, vans
and on some passenger vehicles (on the rear only). It is also one of the oldest forms of
springing, dating back to medieval times. A leaf spring is a simple form of spring,
commonly used for the suspension in wheeled vehicles. A leaf spring may be considered
as a beam of uniform strength composed of leases of equal thickness where the fiber
stress is the same throughout the length of the beam.
Sometimes referred to as a semi-elliptical
spring or cart spring, it takes the form of a slender
arc-shaped length of spring steel of rectangular cross-
section. The centre of the arc provides location for the
axle, while tie holes are provided at either end for
attaching to the vehicle body. For very heavy
vehicles, a leaf spring can be made from several
leaves stacked on top of each other in several layers, often with systematically shorter
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leaves. Leaf springs can serve locating and to some extent damping as well as springing
functions.
There are a variety of leaf springs, usually employing the word "elliptical".
"Elliptical or "full elliptical" leaf springs referred to two circular arcs linked at their tips.
This is joined to the frame at the top center of the upper arc, the bottom center is joined to
the "live" suspension components, such as a solid
front axle. For heavy vehicles, they have the
advantage of spreading the load more widely over
the vehicle's chassis, whereas coil springs transfer
it to a single point. The drive axle is clamped to
the leaf springs and the shock absorbers normally
bolt directly to the axle. The ends of the leaf springs are attached directly to the chassis,
as are the tops of the shock absorbers. The main drawback with this arrangement is the
lack of lateral location for the axle, meaning it has a lot of side-to-side slop in it.
6.2.3 Types of Leaf Springs
Two basic types of leaf spring are Multi-leaf and Mono-leaf.
Multi-leaf springs are made up of several flat steel leaves bound together and
retained with a bolt or clips. The main leaf is the one leaf that is the full length of the
spring from the front mounting bushing to the rear mounting shackle. Each leaf bound to
the main leaf is gradually shorter which gives the spring a tapered profile. Each leaf
added to the spring assembly contributes to its stiffening ability. Because of the curved
construction of the leaf spring, it is also referred to as a semi-elliptical spring.
Mono-leaf, or single-leaf springs are thick in the center and taper off at each end,
which provides a variable spring rate for good load carrying capability as well as a good
ride. Mono-leaf springs are also less noisy while producing less static friction of multi-
leaf springs. Leaf eye at the rear of the spring leaf is secured to the vehicle frame using a
shackle. The spring shackles allow some movement fore and aft in response to the
physical forces on acceleration, deceleration and braking.
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A more modern implementation is the Parabolic Leaf Spring. This design is
characterised by fewer leaves whose thickness varies from centre to ends following a
parabolic curve. In this design, inter-leaf friction is unwanted, and therefore there is only
contact between the springs at the ends and at the centre where the axle is connected.
Spacers prevent contact at other points. Aside from a weight saving, the main advantage
of parabolic springs is their greater flexibility, which translates into vehicle ride quality
that approaches that of coil springs. There is a trade-off in the form of reduced load
carrying capability, however.
Different Varieties of Leaf Springs
1. Double Eye Spring 2. Open Eye Slipper Springs
3. Hook End Slipper Spring 4. Radius End Slipper Spring
5. Flat End Slipper Spring 6.H.D. Slipper Style Springs
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07.
PROCUREMENT FUNCTION
7.1 SCIENTIFIC PROCUREMENT
Procurement or purchasing in essence is the task of buying goods of right quality,
in the right quantities, at the right time & the right price. These essentials of scientific
procurement are though complimentary yet achievement of one does not guarantee the
other. The buyer may have a source capable of giving quality product but he may not
have enough capacity to meet quantity requirements in time or the source may have the
capability to supply goods of right quality & in the right quantities but he may not supply
at the right price or at the right time. But if the buyer has right kind of sources, then he
can get the goods of right quality, in the right quantities, at the right time & at the right
price. To conclude, for scientific purchasing, greater emphasis has to be placed on
locating, selecting, developing & retaining right kind of suppliers.
7.2 OBJECTIVES OF SCIENTIFIC PURCHASING
1. To maintain continuity in respect of supply of materials to support the production
schedule & the company s operations.
2. To procure at a competitive price the needed materials, supplies, tools & services
of the right quality, in the right quantity & at the right time.
3. To avoid duplication, waste & obsolescence in respect of materials.
4. To maintain standards in quality of material based on suitability of use.
5. Developing good & reliable suppliers, & ensuring satisfactory vendor
relationship.
6. To maintain company s competitive position by controlling costs relating to
materials & thereby maximizing profits.
Diagram 7.1 shows 5 Rs of purchasing principles
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Diagram 7.1 Purchasing Principles
7.3 PURCHASE AS A PROFIT CENTRE
Purchase department in almost all companies is the biggest spending dept. Almost
50 to 60% of the company s income is spent on materials. The very fact that the purchase
department is responsible for such a high percentage of the company s money highlights
its role in the profit making potential of the company. The purchase department is though
a cost centre, but considering its role to save company s money, it should be looked upon
as a profit centre. Every rupee saved in buying goes to the profit column of the balance
sheet. Hence the efficient performance of the purchasing function is vital for the efficient
functioning of the whole organization. Purchasing is no longer a clerical function, but a
dynamic discipline which can play a major role in the company s growth. The purchase
dept should employ different cost saving techniques & contribute to the corporate
profitability resulting in the growth of the economy. Diagram 7.2 shows general
purchasing cycle.
5 R s OF
PURCHASING
RIGHT
PRICE
RIGHT
TIME
RIGHT
QUALITY
RIGHT
QUANTITY
RIGHT
SOURCE
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Diagram 7.2 PURCHASING CYCLE
Establish
Procurement Need
Order
Preparation
Market research/
Source selection
Follow up Receiving &
Inspection
Invoicing &
Payment
Scrutiny of purchase
requirement
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7.2 PROCUREMENT AT TML, CVBU PUNE
As mentioned earlier, traditionally, the prices of procured items at Tata Motors
were being finalized by the Material Pricing Committee (MPC) using the knowledge of
the manufacturing process and zero based costing followed up with negotiations with the
vendors. While this was a time tested procedure, there was a growing need to rationalize
the vendor base as over the years the vendor base had become voluminous. Also there
was a cost reduction and quality enhancement drive in progress. It is a committee of
members of various functional areas such as purchase, manufacturing, finance, technical
etc. to discuss the cost details of an item & accord approval to the price asked for by the
prospective supplier. Salient features of the working of the price panel are as:
I. Usage value above which the panel is to approve of the price specified.
II. Vendor development department is required to give cost break up to the secretary
of the price panel
III. Members of the panel meet to scrutinize & discuss the cost aspects.
IV. Price panel if convinced about the details, accords the approval to the proposal.
Purchase order is then raised.
V. If members are not convinced, the supplier is called for discussions.
Price may be finalized either though the system of Competitive bidding (E-
Sourcing at Tata Motors)
or through the Process of Negotiations
with the prospective
suppliers, or through the process of negotiations with the prospective suppliers, or
through the combination of both.
In case of Competitive bidding (tendering) in the absence of negotiations price
paid under the system is usually the lowest of the prices submitted by the potential
suppliers while under negotiation the final price is arrived at after discussion.
Both methods competitive bidding through E-sourcing as well as negotiation are
useful under different conditions. Some conditions (or situations) favour competitive
bidding while others call for negotiations.
Tata Motors found E-sourcing as one of the tools by which Tata Motors could
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achieve all these in the procurement function. The main benefits targeted were:
Cost reduction
Increased transparency
Shortening the procurement cycle
Rationalizing the vendor base by identifying and retaining the right vendors
Cleaning up the data base relating to design and specifications of the components
After considering various options, Tata Motors tied up with M/s FreeMarkets in
the year 2001 for e-sourcing. Between Jan 2002 and Dec 2003, Rs.1445 crs of spend has
been covered by TML through the Ariba procurement suit.
Broadly speaking, there are for 2 types of purchases in Tata Motors:
Auto Purchases: These are manufacturing inputs such as the raw materials and
components going directly into manufactured product.
Non Auto Purchases: These include Operating inputs such as Maintenance,
Repair and Operating (MRO) supplies, Capital goods such as plant and machinery
and Services for e.g. travel related services.
Again these Auto purchases & Non Auto purchases are categorized in number of
different kinds of materials like tyres, proprietary items, forging parts, sheet metal parts
etc. Also these parts are to be procured & purchased in huge quantity. Many other
different functions related with the same are also to be performed viz. vendor
management, development of new vendors for particular type of parts or raw material,
development of new items, tooling assistance required to be given to vendors, monitoring
& improving vendor performance to achieve cost reduction etc. For facilitating smooth
functioning of all these activities of procurement as well as related to procurement, these
different functions are distributed within MPC department as follows. Following tree
diagram (Diagram 7.3) reveals the structure & functioning of each element within the
department.
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General Manager
(Mr. V.N. Bedekar)
Asst. General Manager
(Mr. Atul P. Renavikar)
Divisional Manager
(Mr. M.B. Gare)
Manager (Mr. J.S. Chuttar)
Senior Manager (Mr. U.N. Dixit)
Pricing E-sourcing
Systems ICR*
Engine
Proprietary
Casting
Non-Auto Purchases
Sheet Metal
1. Tyres & Proprietary items. 2. Forging & machined items 3. Rubber & Plastics
BROAD STRUCTURE OF MPC DEPARTMENT AT TML, CVBU
.
*- Integrated Cost Reduction
Diagram 7.3 Broad Structure Of MPC Department
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08.
WORKING
8.1 SAP
All the information required for both the assignments is mostly gathered using
SAP system. Hence it is essential to have some briefing about SAP.
All day to day transactions, expenses, purchase orders releases, RFQs, contracts
made, material received & to be received are stored on the system daily from different
departments of the company for the future purpose which can be retrieved whenever
required. MIS PERSONNEL is to be guided to collate the data from the SAP system. The
SAP systems of concern to us at Tata Motors are:
SAP 3.1: For information prior to 31st July 2003
SAP 4.6: from 1st August 2003
Instead of consolidating the data from the old and the new SAP systems; for the
purpose of simplicity, the data (for e.g. from 1st August 2003 to Jan 2004) can be
obtained from SAP 4.6 and extrapolated for the duration of the contract.
8.1.1 Necessity of SAP
In the automotive industry, where traditional business models are transforming
into transparent, customer-driven value chains, success depends on speed. Speed in
product development, speed in assembly, and speed in delivery and service to dealers and
customers. To stay on the fast track to success, integration of OEMs, suppliers, dealers,
and customers is essential.
SAP for Automotive industry is designed to streamline and improve disjointed
business practices -- enabling to manage multitiered networks of customers, suppliers,
and partners closely. This solution set facilitates seamless integration and collaboration
across multiple internal and external organizations. And it includes best practices that
support critical business processes -- providing full visibility into enterprise data and
increasing speed and flexibility worldwide.
With SAP for Automotive solutions, local needs and centralize control can be
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balanced while opening the door to innovation in industry growth areas. SAP solutions
provide user-friendly access to information and applications all based on Web-enabled
technology.
8.2 PRICE AMENDMENT ANALYSIS OF FORGING PARTS
As mentioned earlier in topic 5.4, this project is not a one time project & the
similar exercise has to be carried out before whenever similar kind of price amendments
whether price increase or reductions are to be observed. The whole exercise can be
broadly categorized into 2 parts.
1. Information Aggregation &
2. Information Analysis
8.2.1 Information Aggregation
This is the most crucial step because it will build the foundation for all proceeding
steps to be performed for both of these exercises. The project starts with the collection of
information regarding who are the suppliers of forging parts to TML, CVBU Pune i.e.
just collection of all forging part suppliers names. Also it comprises of details regarding
the parts supplied by these vendors, detail of contracts, scheduled agreements etc.
8.2.1.1 Price Amendment Workings
The aggregation of information starts with the collection of Price Amendment
Working (PI Working)
files (also known as the Master File ) of all vendors. There are
about fifty vendors of forging parts. For every vendor there is a separate file. It is
available as an excel sheet. The file includes the information regarding all parts supplied
by the supplier to the Pune plant along with their part numbers & short description
supplied by the particular supplier. The parts in the file are only those parts which have
gone the price amendments (which are mostly increments) in the past as on 1st April
2004. It also reveals the information of materials specifications used for the particular
part, input weight & finished weight. There is a difference in the input weight & finished
weight since some of the material is removed during the forging & the machining
processes. Table 8.1 gives the format & idea of contents of the working file. Contract
numbers have also been mentioned in some of the PA working files.
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It can be observed clearly from the table that the file gives the detailed
information as on which date the price amendments has been occurred, hence how much
amendment per unit kg had to be carried out & finally what is the revised price &
applicable from which date etc.
After collecting PI working files of all vendors each vendor is considered one by
one for further analysis.
8.2.1.2 Identification of Parts from SAP
As mentioned earlier in 8.1 SAP is the main database storage & processing
system used at TML, CVBU Pune. PA working file of any vendor does not give
information about all the parts supplied by any particular vendor. But it is required to
check each & every part for the price reduction. Such identification of all the parts
supplied by each vendor can be done using query ME3L (Purchasing Documents per
Vendor) (in SAP 6.4. This query is also known as Outline Agreements per Vendor .
Inputs required to be entered for getting the relevant parts & the details pertaining to their
contract & scheduled agreement are:
1. Vendor Code allotted to every vendor by TML viz. A02540 for M/s Ahmadnagar
Forgings Ltd etc. It is the compulsory field to be filled up for ME3L query.
2. Document type i.e. PMK, PMKO etc. P represents for Pune plant. For this
particular project everywhere P* is to be entered. Because all types of documents
are required for analysis here.
The snap of the screen of SAP showing inputs required to be entered according to
the need is as shown in Pic. 8.1. The information obtained has to be downloaded in the
format of excel sheet as the format & the manner in which the information is obtained
can t be used as it is. SAP facilitates the downloading of this information in the excel
sheet using Save command in System menu. In excel the data is arranged accordingly to
have better visualization & understanding using Sort command. Also unnecessary
columns are deleted.
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Pic. 8.1 Screen showing inputs to be entered for ME3L query
After rearranging the data according to requirement the file takes the form as shown in
the table 8.2 Document
No. Part No.
Document Type
Supplier Code
Part Description Price Effective Date
Xxxxxxxxxx xxxxxxxxxx PMK R61321 SEALING PLUG 23.39 02.11.2004
xxxxxxxxxx xxxxxxxxxx PMKO R61321 HEXBOLT M14X1.5X90IS13726 8.8
60.21 20.06.2005
xxxxxxxxxx xxxxxxxxxx PMKO R61321 HEX NUT M18X1.5 IS13722 B8 SS9400
24.50 26.12.2004
xxxxxxxxxx xxxxxxxxxx PMKO R61321 HEX NUT M24X1.5 IS13722-10-SS8451-8CH
46.87 16.07.2005
xxxxxxxxxx xxxxxxxxxx PMK R61321 CLEVIS PIN 6f8X12X9.5 TS17606
1.52 17.06.2003
xxxxxxxxxx xxxxxxxxxx PMK R61321 ADJUSTING SCREW 14.63 17.06.2003
xxxxxxxxxx xxxxxxxxxx PMK R61321 ADJUSTING NUT 5.69 17.06.2003
xxxxxxxxxx xxxxxxxxxx PMK R61321 ADAPTOR 7.69 27.07.2003
xxxxxxxxxx xxxxxxxxxx PMK R61321 ADAPTER 7.69 27.07.2003
xxxxxxxxxx xxxxxxxxxx PMK R61321 SHIFTER PIECE 19.32 09.01.2005
xxxxxxxxxx xxxxxxxxxx PMK R61321 PLUG 16.37 17.06.2003
xxxxxxxxxx xxxxxxxxxx PMKO R61321 PROTECTIVE SLEEVE -UPPER 48.08 17.06.2003
xxxxxxxxxx xxxxxxxxxx PMK R61321 PROTECTIVE SLEEVE-LOWER 42.95 17.06.2003
Table 8.2 Downloaded from SAP
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The downloaded information is of all the Contracts & Scheduled Agreements
of all the parts supplied or supposed to be supplied by considered vendor which can be
chosen using Choose button as can be seen in the pic. 8.1
The file name is given such that it can be easily recognized by its naming itself, of
which vendor the particular file belongs to. Viz. A61321A badPoandContr22Jun06.xls
The table is sorted by Ascending Part No.s & then by descending prices.
8.2.2 Information Analysis
8.2.2.1 Screening of Materials
The analysis is to be carried out for each & every part, however smaller or larger
or however cheaper or costlier it may be, supplied by all the vendors. The information
gathered also contains all such parts. Some of the suppliers are engaged in supplying
more than 200 parts to TML, Pune CVBU. Thus it could be a hectic & time consuming
job to analyse each & every part. But there is a way out. It is not necessary to carry out
analysis of each & every contract. There are two screening tests to drop some of the
materials/parts from analysis list.
1. Duplication Check
2. vlookup.
1. Duplication Check - Using IF command duplication check is carried out for part
numbers to identify different types of purchases for the same part or the same
material like Continuous purchase (Document Type PMK) & One time purchases
(Document Type PMKO). The purpose is to avoid the repetition of work for the
same parts. It is carried out in the SAP downloaded file itself.
2. vlookup - The Price Increment file comes into picture at this step. It gives
readymade data of those materials which have been already given price
increments. So these are the parts surely to be considered for the price reductions.
The question arises about those parts/materials which are present in the SAP
downloaded file but not in PI Working file. These are generally those
parts/materials
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June-July 2006 -60-
I. Which were not given price increment effective from 1st April, 2004 or
II. Which are being procured from the supplier after 1st April, 2004 or any other
similar type of reason.
Microsoft Excel facilitates this screening by vlookup
command which is done
again in the SAP downloaded file itself. Thus only those parts/materials not present in the
PI working file are taken for the further analysis.
8.2.2.2 Analysis of Screened Parts
Analysis of all screened parts is required to be carried out one by one. It is again
done using SAP. For the analysis & the identification of the basic prices & description of
each part query ME3M (Purchasing Documents for Materials) is used. The query is also
known as Outline Agreement by Material .
The important inputs required to be entered for getting required information are:
1. Material or Part Number
The number is allotted to each & every part/material
which is also used by the vendors for the design, drawing, communication,
negotiations as well as transaction purposes. It is the compulsory field to be filled
up for this query.
2. Document Type
It is similar as explained for query ME3L . Here also the type
entered is P* as all documents of a concerned parts procured at Pune plant are
required irrespective of whether it is the continuous procurement or one time
procurement.
3. Vendor Code
There may be a possibility that a single part is being supplied by
more than one supplier. It is generally done so as to ensure uninterrupted supply
of parts/materials for smooth functioning of production taking into consideration
the increasing work load due to all round spreading business of TML &
increasing demand from the market. Also there may be any unpredicted problem
occurrence from any of the vendor s side. But since just a single supplier is under
consideration at a time, the information related to just that supplier is needed.
Otherwise SAP provides information of all suppliers & it becomes cumbersome
to sort out that information.
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4. Choose In the choose function RFQ is also checked in the checkbox, as RFQs of
these materials are also needed for further analysis.
Pic.8.2 shows the snap of the screen of SAP displaying the inputs to be fed for getting
data from ME3M query.
Pic. 8.2 Screen showing inputs to be entered for ME3M query
After entering all the required details the screen displaying RFQ details, Agreements &
Scheduled agreements & executing, is shown in pic. 8.3
8.2.2.3 Price Validity Date Checking
The effective dates obtained during information aggregation stage might be
misleading. It should be noted that it is the date when firstly the particular material has
been procured or purchased. In the outline agreements it indicates start of the stipulated
validity period of an outline agreement. It is the date as of which services can be
performed or materials delivered. It does not indicate the validity starting of existing
price which has been obtained through SAP. But we are concerned about the date from
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which the existing price of the part/material is valid or effective.
Pic. 8.3 Screen Displaying Contract, RFQ & Scheduling Agreements of U Clamp supplied by one of the vendors.1
Price validity can be checked in the document in item condition using PB00 (for
Document type PMK) or PB25 (for Document type PMKO) condition according to the
contract type. The document can be opened using Display Document (top left button in
pic. 8.3 above Contract). Validity date of the existing price is recorded in the SAP
downloaded file against the concerned Part Number.
8.2.2.4 Identification of Price Amendments
The procedure for obtaining all price amendments for the taken Part/Material from the
concerned vendor is exactly same as used for price validity date checking. It gives the
date on which the price increment or price reduction took place, the old price as well as
the new price which has to be again noted in the SAP downloaded file of the particular
vendor against the concerned part number. The remarks given for different conditions are
as follows:
1 Vital information is erased for confidentiality reasons. Same practice is followed at all places.
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SR.
NO.
PRICE
INCREMENT
PRICE
VALIDITY
DATE
REMARK FURTHER ACTION TO
BE TAKEN
1. Not given Before
01.04.2003
No PI hence
no reduction
No further analysis as price
reduction is not to be
demanded from vendor. Its
further analysis is terminated
& next part is taken for
analysis.
2. Not given After
01.04.2003
(No Remark) Noting RFQ numbers in SAP
downloaded file of that
particular part/ material for
its details.
3. Given Any PI on <date>
<Old Price>
Noting RFQ numbers of that
particular part/ material in
SAP downloaded file for its
details.
Table 8.3 Remarks & proceedings for different set of conditions of PI & price validity
8.2.2.5 Identification of Last Supply Date
Last Supply Date is the last date on which the material has been obtained from the
supplier. It is necessary to check last supply date to see whether the concerned material is
still procured from the vendor or not. It also gives the information whether the Purchase
Order for the material considered is being issued or not. The condition regarding the last
supply date can be obtained in Scheduled Agreement using PO history tab in the window
shown in pic. 8.3. Accordingly the last supply date or remarks are noted down again in
the file downloaded from SAP. Remarks in the column of Last Supply Date
corresponding to different conditions are mentioned in the following table:
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SR.
NO.
CONDITION ENTRY TO BE DONE
1. Message appears: No purchase order history records
found
Remark: No supply
2. Series of dates is displayed Last date in GR (Goods
Received) is noted
3. Scheduled agreement itself is not present in main
window
Remark: Only contract no
PO.
Table 8.4 Entries in the Last Supply Date column for different conditions
Though this step is not of so much importance from the point of view of selection of the
parts which are to be considered for the price reduction, it may be helpful in the future.
e.g. If for some material Purchase order has not been release by TML but it is on the
record that the vendor is capable of supplying that material, then if in the future existing
suppliers can t supply the material, the earlier one can be asked for the supply.
8.2.2.6 Selection of Parts to be considered for price reduction
This is the final step in the selection of the parts which are to be considered for
price reductions. After all screened parts passing through the steps 8.2.2.2 to 8.2.2.5, this
final selection is done. Following parts are selected for price reduction purposes:
1. All parts/materials which have gone through the price amendments in the past.
2. All parts/materials having price validity date after April 1, 2004 irrespective of
whether they have observed price amendments or not in the past.
Color coding according to convenience can be used for the parts selected for the price
reduction & parts dropped from the list of price reduction. It facilitates easy identification
& better visualization. After this step the table takes the form as shown in the Table 8.5
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8.2.3 RFQ analysis
The Price Amendment Analysis does not get over at the selection of the parts to
be considered for the price reduction only. As mentioned in table 8.3 the RFQs of the
parts/materials to be considered for the price reductions are already noted down. Once the
exercise up to step 8.2.2.6 is carried out for all the parts/materials of the concerned
vendor, all the noted RFQs of selected parts are collected for further analysis.
The RFQ as described in 5.2 describe the items & services that the buyer is
intending to purchase along with the commercial term, quality norms & technical
specification. The RFQ generally comes enclosed with the working of prices in detail,
negotiations, mails etc. The information of our concern here to be obtained from the
RFQs is the selected parts input weight, finished weight, gross weight or the net weight
(according to availability) & raw material specifications viz. FE410WA 25mm RD, 45C8
15mm dia, Fe 410WA/ISW:2062 36mm bright etc.
Sometimes some selected parts are the replaced parts for some old parts (might be
because of slight variations in the design of the part), or similar to or in line with some
other part. It can also be recognized through RFQs & the technical data can be obtained
from these parts as many times they can be available from PI working file itself. Some
parts are purchased in different forms viz., finished, semi finished or raw form. Though
the part/material is the same there is a slight variation in the number to recognize its
form. In such case the selected part can be checked for its other form availability in PI
working file. If present in PI working file the same technical specifications are applicable
to the concerned selected part also.
The above mentioned technical data is required to recalculate the prices of the
parts/material taking into consideration all the relevant price revisions which are to be
considered for the price reductions. The price reduction to be taken per kg is already
being negotiated with the vendors. Also many a problems of purchasing & engineering
are common. Engineering is usually responsible for preparing technical specifications for
a company s materials & equipment. Since specifications determine costs, the
specifications adapted by engineering must specify materials that are both economical to
procure & economical to fabricate.
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The parts selected for price reduction are then transferred to PI working file along
with their technical specifications & the file is sent to the vendor for their consensus on
price reductions.
After the consensus obtained from the suppliers on the price the new price is
entered in the system with the date from which the given price is taken to be effective.
Here it ends the exercise for just a single supplier. Similar exercise (steps from
8.2.2.2 to 8.2.2.7) is to be carried out for all the vendors of forging parts one by one & the
parts/materials for which the price reductions are to be demanded are analyzed &
communicated to the supplier.
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June-July 2006 -68-
8.3 SPEND ANALYSIS OF LEAF SPRINGS
As seen from the objective of Spend Analysis of Leaf Springs (topic 7.2) it is
clear that it is not the specific purpose exercise. Spend analysis for any item category is
generally carried out for the general purposes as mentioned in 7.2.1.
The analysis carried out as a project here is only concerned with Pune Plant s
procurement of Leaf Springs. For performing this Spend Analysis along with SAP,
DENIS i.e. Production Management System of Tata Motors is also required to be used.
The whole analysis can be broadly categorized as:
A. Business Turnover analysis of Leaf Spring Vendors with TML, CVBU Pune
B. Preparation of Spend Matrix & Analysis
C. Identification of alternate vendors for all parts in Spend Matrix
8.3.1 Business Turnover analysis of Leaf Spring Vendors with TML, CVBU Pune
8.3.1.1 Information Aggregation
The exercise starts with the knowledge of all are the vendors of leaf springs to
TML, CVBU Pune along with their codes. It is the most important step for doing spend
analysis of the leaf springs. But here details of contracts, scheduled agreements etc. are
not needed. The most concerned information is about the extent of business between
TML & all the vendors in GR (goods received) monetary terms. The information
obtained here is of the vital importance.
The data includes:
A. Year wise total spend of TML, CVBU Pune on all types of leaf springs from all
vendors from 2003 to June 2006 (1st quarter of this financial year)
B. Goods received (in INR) from each supplier each year.
The turnovers can be downloaded from SAP. The query used is MC$4 (PURCHIS:
Vendor PurchVal Selection). It has to be done period wise. Inputs required to be entered
for getting all the concerned turnover figures are:
A. Vendor Codes allotted to the vendors. Here all the vendor codes can be entered at
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a time since the exercise is to be carried out period wise for every financial year
from 1st March 20032.
B. Plant
There is a specific plant code for each of the plants, Pune, Jamshedpur &
Lucknow. Since the turnovers for the Pune plant are to be found out plant code of
Pune plant is entered.
C. Period to analyze
It is the period for which the analysis is to be carried out. The
period considered here for the analysis is from April 2003 onwards up to June
2006. For analysis purpose this period has been broken down in three financial
years & 1st quarter of current financial year as follows:
a. 04.2003 to 03.2004
b. 04.2004 to 03.2005
c. 04.2005 to 03.2006
d. 04.2006 to 06.2006
Every period is analyzed separately. Pic. 8.4 shows the snap of window where inputs are to be fed for the query MC$4:
Pic. 8.4 Inputs to be fed for the query MC$4
2 SAP 4.6 was implemented from August, 2003. Hence the data available is also from the same month.
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For further analysis & processing purpose the data obtained in saved as the excel sheet
for every period. For a single period the data obtained is shown in the table 8.6 No. of Vendors: 8
Vendor Order value GR value Invoiced amount
Total x,xxx,xxx,xxx.xx
x,xxx,xxx,xxx.xx
x,xxx,xxx,xxx.xx
INR
Supplier 1 xxx,xxx,xxx.xx
xxx,xxx,xxx.xx
xxx,xxx,xxx.xx
INR
Supplier 2 xx,xxx,xxx.xx
xx,xxx,xxx.xx
xxx,xxx,xxx.xx
INR
Supplier 3 xxx,xxx,xxx.xx
xxx,xxx,xxx.xx
xxx,xxx,xxx.xx
INR
Supplier 4 xxx,xxx,xxx.xx
xxx,xxx,xxx.xx
xxx,xxx,xxx.xx
INR
Supplier 5 xxx,xxx,xxx.xx
xxx,xxx,xxx.xx
xxx,xxx,xxx.xx
INR
Supplier 6 xxx,xxx,xxx.xx
xxx,xxx,xxx.xx
xxx,xxx,xxx.xx
INR
Supplier 7 xxx,xxx,xxx.xx
xxx,xxx,xxx.xx
xxx,xxx,xxx.xx
INR
Supplier 8 xx,xxx,xxx.xx
xx,xxx,xxx.xx
xx,xxx,xxx.xx
INR
Table 8.6 Data obtained for one of the financial years
It can be seen from table 8.6 that the values obtained against each vendor from
SAP include:
Order Value
GR Value &
Invoiced Amount
Out of above 3 values the values needed are that of only GR (Goods Received) value.
So the columns of Order Value & Invoiced Amount are removed.
Similarly the data is collected for all the periods as mentioned above.
8.3.1.2 Information Consolidation
The data collected for all the periods is needed to be consolidated in a single file.
It facilitates ease in the further analysis to be done.
Also for some of the suppliers there is more than one vendor code. It is because of
the different plants of the same vendor or different production facilities. But for analysis
purpose every supplier has to be considered individually irrespective of from how many
plant locations the supply is being done by the supplier. So it is required to add the values
pertaining to different vendor codes of the same supplier & consolidate into single.
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After all consolidations, the table appears as shown in the table 8.7
PUNE PLANT (xxxx)
6.2003-3.2004 4.2004-3.2005 4.2005-3.2006 4.2006-6.2006 Vendor Code Vendor
GR (INR) GR (INR) GR (INR) GR (INR)
AXXXXX/XX ABC PVT LTD XXX,XXX,XXX.XX XXX,XXX,XXX.XX XXX,XXX,XXX.XX XX,XXX,XXX.XX
MXXXXX MNO XXX,XXX,XXX.XX XXX,XXX,XXX.XX XXX,XXX,XXX.XX XX,XXX,XXX.XX
PXXXXX PQR XX,XXX,XXX.XX XXX,XXX,XXX.XX XXX,XXX,XXX.XX XX,XXX,XXX.XX
XXXXXX/XX,
XXXXXX XYZ XXX,XXX,XXX.XX XXX,XXX,XXX.XX XXX,XXX,XXX.XX XXX,XXX,XXX.XX
TXXXXX TUV LTD XX,XXX,XXX.XX XX,XXX,XXX.XX XXX,XXX,XXX.XX XX,XXX,XXX.XX
Total XXX,XXX,XXX.XX X,XXX,XXX,XXX.XX X,XXX,XXX,XXX.XX XXX,XXX,XXX.XX
Table 8.7 Value of Goods Received From Each Supplier (In INR)
8.3.1.3 Information Analysis
Information & data in the hand can always be better understood & analyzed using
graphical representation of the data. The advantage of the graphical representation is
quick visualization of the data at a glance & better visualization & fast analysis as
compared to the analysis of information in the tabular format. Graph 8.1 shows the
business of all vendors with TML, CVBU Pune from April 2003 to March 2006.
The graph shows who was the major supplier every year as well as the increase or
decline in the business of every vendor with TML with the advancement of the period. It
can be seen that only suppliers are having increasing business per year while other three
suppliers are showing same trend as increasing business till from 2003 to 2005 & then
declining till March 2006. Also XYZ Pvt Ltd seems to be major supplier except for the
financial year 2004-2005 after which showing substantial growth.
The limitation of the graphical representation of values directly from the table
imposes certain limitations.
Data of the 1st quarter of this financial year can t be included in the graph.
Also the values obtained for the period of April 2003 to March 2004 are not exact
values because SAP 6.4 was implemented from August 2003. Hence it can t
include the data before it. The approximation is considered in the graph which
may give wrong picture.
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The graph does not speak about the share of business of any of the vendor at all &
hence does not indicate the competence level of any of the vendor. though the
business in monetary terms is fluctuating the SOB of some vendors might be
same because of the fluctuation in Tata Motor s acquisition in the product.
So for better approximation & error elimination in the analysis and also to include
all the data & information for analysis purpose, the data for each period considered
should be comparable. It can be done by calculating the percentage of each vendor s
business for each year out of the total business.
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Gra
ph
8.1
Ye
ar w
ise
Bu
sin
ess
of
eac
h V
en
do
r
AB
C P
VT
LTD
.
MN
O
PQR
XY
Z
TUV
LIM
ITED
0.00
100.
00
200.
00
300.
00
400.
00
500.
00
600.
00
700.
00
6.20
03-3
.200
44.
2004
-3.2
005
4.20
05-3
.200
6
Millions
YEA
RS
GR (INR)
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June-July 2006 -74-
22.4
9 17.8
9 9.16 6.
33
25.1
829.8
9 26.6
0 18.5
7 8.94
18.2
7 15.0
721.9
0
37.8
0 28.5
6
40.5
644
.35
5.60
5.38
8.61
8.85
0.00
5.00
10.0
0
15.0
0
20.0
0
25.0
0
30.0
0
35.0
0
40.0
0
45.0
0
PERCENT SHARE
AB
C P
VT
LT
D.
MN
OP
QR
XY
ZT
UV
LIM
ITE
D
VE
ND
OR
Gra
ph
8.2
Bu
sin
ess
Tre
nd
of
eac
h v
en
do
r
6.20
03-3
.200
4
4.20
04-3
.200
5
4.20
05-3
.200
6
4.20
06-6
.200
6
Project Report
June-July 2006 -75-
Graph 8.2 clearly indicates the variation in the performance level of every vendor
with the advancement of period whether the business share of a particular vendor with
TML is increasing or declining or having some other fluctuation in their business with
TML. Though the graph facilitates much better visualization of performance trend of all
the vendors with the advancement of the period it does not indicate the comparison or
show the comparative position of all the vendors with respect to each other.
The table 8.8 gives the calculated percentages.
PUNE PLANT (1001)
6.2003-3.2004 4.2004-3.2005 4.2005-3.2006 4.2006-6.2006 Vendor
Code Vendor PERCENT PERCENT PERCENT PERCENT
AXXXXX/XX ABC LTD 22.49
17.89
9.16
6.33
MXXXXX MNO 25.18
29.89
26.60
18.57
PXXXXX PQR 8.94
18.27
15.07
21.90
XXXXXX/XX,
XXXXXX XYZ 37.80
28.56
40.56
44.35
TXXXXX TUV Ltd 5.60
5.38
8.61
8.85
Total 100.00
100.00
100.00
100.00
Table 8.8 PERCENT SHARE OF EACH SUPPLIER OF LEAF SPRINGS
Graph 8.3 gives both the change in the share of business of each vendor each year
as well as comparative position of all with each other.
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Gra
ph
8.3
Yea
r w
ise
Per
cen
t Sh
are
of E
ach
Ven
do
r
AB
C P
VT
LT
D.,
6.3
3
9.1
6
17
.89
22
.49
MN
O,
18
.57
26
.60
29
.89
25
.18
PQ
R,
21
.90
15
.07
18
.27
8.9
4
XY
Z,
44
.35
28
.56
40
.56
37
.80
5.6
05
.38
8.6
1
TU
V L
IMIT
ED
,8
.85
0.0
0
5.0
0
10
.00
15
.00
20
.00
25
.00
30
.00
35
.00
40
.00
45
.00
50
.00
6.2
00
3-3
.20
04
4.2
00
4-3
.20
05
4.2
00
5-3
.20
06
4.2
00
6-6
.20
06
YE
AR
S
PERCENT SHARE
AB
C P
VT
LTD
.
MN
O
PQR
XY
Z
TUV
LIM
ITED
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June-July 2006 -77-
Graph 8.3 shows the year wise percent share of business of each vendor.
Comparative position of each vendor every year with respect to each other can be easily
visualized from the graph. The graph represents the true & more accurate picture than the
previous one. E.g. though for supplier XYZ the business had increased in monetary
values in 2004-2005, same had to face loss of business share out of total business of leaf
springs of TML. Thus though graph 8.1 shows sustained growth of business with XYZ,
in terms of percent share of business as can be seen in graph 8.3 the growth is not
sustained.
Supplier MNO having highest share of business only during 2004-2005 showing
continuously declining trend after that.
Similarly, for supplier TUV though having continuous growth in monetary terms
but in terms of percent share of total purchases of TML after facing small decline in
2004-2005, same is maintaining the sustained growth though slow till June, 2006.
Thus the analysis concludes that XYZ is becoming the major supplier of leaf
springs for TML showing substantial growth in total supply almost up to 45%. While
MNO is continuously losing the share of business & in the 1st quarter of this financial
year supplier PQR has come up substantially after continuously losing share of business
in previous few years taking away some of the business from MNO & taking over it.
The advantage of the graph is that it facilitates easy visualization of increase or
decline in the share of business of each vendor with TML in the considered period.
Graph 8.3 shows the performance of each vendor with the advancement of the period
from April 2003 to June 2006.
8.3.2 Preparation of Spend Matrix & Analysis
The analysis does not end just at the Turnover analysis of the vendors. The further
analysis includes out of the different types of leaf springs (viz. front/rear, regular/
parabolic leaf springs) used in different vehicles (viz. LPT1613, LP 1510F) for each &
every type of leaf spring who are the different suppliers. Also there are different variants
of the same vehicle also in which also different types of leaf springs are used. Along with
the identification of suppliers the spend matrix includes the SOB of suppliers for
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June-July 2006 -78-
procurement of all types of leaf springs. Thus this analysis can also be called as Drill
Down Analysis as it can be said as the one step ahead of the turnover analysis.
8.3.2.1 Information Aggregation
The identification of all the suppliers has been already done in the spend analysis.
The identification of the share of business & the cumulative receipts (quantity & value)
can be done using query SA 38 (ABAP Reporting) in SAP. For SA 38 the program
name is to be entered. For our purpose the program to be entered is
zmmrep_sob_var_pune. The inputs required to be entered are:
A. Plant Code
It is again same as entered previously. Since the analysis has to be
done for the Pune plant s procurement of leaf springs, Pune plant code has to be
entered.
B. Movement Type
It is a type of inventory management. Specifies a key for the
type of goods movement (Physical or logical movement of materials leading to a
change in stock levels or resulting in the direct consumption of the material. Each
goods movement (for example, purchase order to warehouse) is allocated to a
movement type in the system. Classification key indicating the type of material
movement (for example, goods receipt, goods issue, physical stock transfer). The
movement type enables the system to find predefined posting rules determining
how the accounts of the financial accounting system (stock and consumption
accounts) are to be posted and how the stock fields in the material master record
are to be updated.
C. Material Doc Posting Date
Date which is used when entering the document in
Financial Accounting or Controlling. The fiscal year and the period for which an
update of the accounts specified in the document or cost elements is made, are
derived from the posting date. When entering documents, the system checks
whether the posting date entered is allowed by means of the posting period
permitted. The posting date can differ from both the entry date (day of entry into
the system) and the document date (day of creation of the original document). The
data required is of just the last financial year. Hence the period entered is
01.04.2005 to 031.03.2006.
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D. Vendor
It is also same as entered previously. All the vendor codes available are
to be entered at a time to get all the types of leaf springs in a single execution.
E. Download Filename
For SA38 direct option is available while entering the
inputs only to download the file in the excel format. It is not required to download
the data after execution of the command.
The input screen for SA38, program zmmrep_sob_var_pune is as shown in pic. 8.5
Pic. 8.5 Input screen for query SA38 , program program zmmrep_sob_var_pune
The table obtained in the excel format shows all the types of leaf springs, their
respective suppliers, rates per unit, received quantity, received value, approved SOB,
actual SOB, period considered, etc. Following table 8.8 shows the part of the table
downloaded.
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In the downloaded table there are many parts for which there is no supply from
their respective suppliers i.e. received quantity & received value are zero. These parts are
not required for the analysis purpose. So they are deleted from the table.
8.3.2.2 Identification of Alternate Suppliers
This part of exercise is carried out to identify the alternate suppliers for the same
part. The part numbers used by the different suppliers are different. The same exercise
also gives the Tata Motors offer drawing number. The task can be performed by using
DENIS & choosing F503VT in the file menu.
DENIS is again same as SAP, the database manger for Tata Motors. But it is
mainly used here for the details regarding different parts, the part numbers, offer drawing
numbers of TML, drawing numbers used by different vendors for the same part etc.
DENIS is mainly useful for the following purposes:
A. To make REQUISITION for drawings
B. To identify the Tata Motors offer drawing number against the part number
C. To identify the child parts & their respective drawing numbers using exp/imp
reports.
D. To identify if the drawings that have been received from Standards 1 are the latest
drawings.
It is a cumbersome job since the exercise is to be carried out for all the parts. Here
also Duplication Check can be carried out to screen out same part numbers & avoid
duplication of work.
In the enquiry Selection Part No. in DENIS it is just required to enter the part
numbers one by one. If the same part description is available with different part numbers
or Tata Motors offer drawing number or both all are displayed which are then copied in
the table 8.9 against the considered part number. If the supplier name is also available it
is also mentioned against this alternate part number. The exercise facilitates the easy
identification of the prices for the same part numbers supplied by the different suppliers
which can provide useful tool during negotiations with the vendors providing at high
prices.
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8.3.2.3 Identification of vehicles for respective leaf spring
The exercise is to be carried out again for all the part numbers. The Duplication
Check done earlier can be useful here also. In SAP query SA38 again is used for this
task. But the difference is different program used is zr_pp_zapr0108 . The only input
required to be filled here is Material Number & Plant No. & selecting implosion list as
seen in the pic. 8.6. Also in the downloaded table in which vehicle the particular part is
used is mentioned in the part description itself.
Pic. 8.6 Inputs for SA38 query, program zr_pp_zapr0108
8.3.2.4 Analysis of Suppliers whole business
It is a part of the same exercise. It is necessary to have analysis of the strengths &
weaknesses of the suppliers which will be helpful from the futuristic point of view. It can
also be called as SWOT analysis of all the suppliers. For this analysis the data required is
balance sheets, annual reports and profit & loss accounts of the suppliers. If the supplier
is listed on any of the stock exchanges the information regarding the same can also be
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useful. It can be used for finding out, out of the total business of the supplier how much
business is being supplied by TML, Pune. Also it is to be found out who are the other
major buyers of the concerned suppliers. The analysis can also be useful in revealing the
market position, financial status of the business in order to determine their capabilities to
fulfill the needs of TML, CVBU Pune.
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09.
LIMITATIONS OF THE PROJECT
9.1 PRICE AMENDMENT ANALYSIS OF FORGING PARTS
Last supply date, though sometimes too old it can t be avoided by assuming that
its supply has been terminated. Thus last supply date can t indicate whether the
supply of a particular part or material is on or not. Hence sometimes it is possible
by the analyser to include the part of which the supply is not on.
It is required to maintain the price amendment analysis file separately which is
created manually hence some human mistakes are bound to occur in typing or any
similar kind of mistake.
9.2 SPEND ANALYSIS OF LEAF SPRINGS
Analysis of the vendors financial position is one of the important part of the spend
analysis of leaf springs. To calculate different ratios annual reports, balance sheets,
profit & loss accounts etc. of all the vendors are required. Some of the vendors are not
listed on any of the exchanges & it s a cumbersome job to find out all these. The
required statements are not available even on the websites of the respective vendors.
Hence strategy formulation might be sometimes based on assumptions & inadequate
available information which can impose errors in decision making.
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10.
RECOMMENDATIONS
10.1 PRICE AMENDMENT ANALYSIS OF FORGING PARTS
Taking into consideration the problems occurring due to errors related to last
supply date, the record of all the items should be updated mentioning whether the
particular item is still in use or not.
If possible the master files (Price amendment files) should be made available on
the system for the convenience of the analyser.
10.2 SPEND ANALYSIS OF FORGING PARTS
Annual reports, balance sheets, P & L accounts of all the vendors should be collected
from the vendors itself at the time of purchasing decision itself for the further reference
not only during spend analysis exercise but also during other exercises. These can help in
calculating different entities, ratios, operating profits etc.
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11.
SUMMARY
11.1 PRICE AMENDMENT ANALYSIS OF FORGING PARTS
At the end of the total project, the exercise provides the detailed analyzed
information of:
A. All the vendors to be considered for the forging parts procurement
B. Strategies for the future negotiations to be carried out & business with the vendors
C. Analysis of all the forging parts procured by Tata Motors Limited, CVBU Pune.
D. Analysis of all such parts which are to be considered for the price reductions
taking into consideration all the criterions as mentioned in article 7.1 (Objectives
of Price Amendment Analysis of forging parts)
The steps carried out are mainly:
A. Information aggregation &
B. Information analysis
The list of parts which are to be considered for the price reductions is again
extended with the inclusion of technical specification of input & finished weights etc.
The information obtained from analysis can also be used to carry out the Spend
Analysis as well as Pareto analysis for the parts procured & the suppliers of the forging
parts.
11.2 SPEND ANALYSIS OF LEAF SPRINGS PROCURED BY TML, CVBU
PUNE
The spend has been divided in 2 parts.
A. Turnover analysis of all the suppliers of the leaf springs &
B. Preparation & analysis of the spend matrix of leaf springs
11.2.1 Turnover analysis of all the suppliers of the leaf springs:
The turnover analysis gives the clear picture of who are the major suppliers of the
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leaf springs presently to TML. Also it indicates the trend of business of all the suppliers
with TML, CVBU Pune. The analysis represents the results since financial year 2003 till
1st quarter of this financial year i.e. 2006-2007.
The analysis gives the clear idea regarding the competency level of all the
suppliers as well as using the graphs the comparative position of each of them.
Accordingly the future strategies can be decided for the procurement of leaf springs. It
includes following steps:
A. Informatin Aggregation
B. Information consolidation
C. Analysis of information
11.2.2 Preparation & analysis of the spend matrix of leaf springs:
As mentioned earlier it is the Drill Down Analysis i.e. one step ahead of the
turnover analysis. Because in the turnover analysis the total business of the supplier with
TML is taken into consideration while in this exercise business of supplier pertaining to
each & every type of leaf spring used in all vehicles manufactured by TML (all front as
well as rear) is taken into consideration.
The spend matrix gives the analysis of approved & actual SOB for all the leaf
springs held by its concerned suppliers. Also it mentions in the spend matrix table only
all the suppliers for the same type of the leaf spring & their prices per unit as well as
quantity received from each of them & hence the total spend of each of the item on
different suppliers by TML. Also it provides the information regarding in which vehicles
particular leaf spring is used. Analysis includes the following main steps:
A. Information Aggregation
B. Identification of alternate suppliers for the same item number.
C. Identification of vehicles for respective leaf springs &
D. Analysis of suppliers whole business
The same analysis can also be used for carrying out the Pareto analysis for all the
items procured & for all the suppliers.
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12.
BIBLIOGRAHPY
I. Books
a. E- Sourcing Manual (A practitioner s guide to E-sourcing at Tata
Motors)- Zainab Karaime, TAS Officer.
b. Enterprise Process Manual.
c. Purchasing Management by L.C. Jhamb.
d. Material & Logistics Management by L.C. Jhamb.
e. Purchase & Supply Management by Dobler.
II. Articles
a. How to deal with steel by Wim VanAcker
III. Internet
a. www.tatamotors.com
b. www.tata.com
c. www.steelonthenet.com
d. www.commoditiescontrol.com
e. www.ifpmm.org
f. www.forging.org
g. www.invest.economictimes.indiatimes.com
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