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

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Page 1: Spend analysis of leaf springs procurement

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

Page 2: Spend analysis of leaf springs procurement

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

Page 3: Spend analysis of leaf springs procurement

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

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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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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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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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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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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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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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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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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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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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Page 70: Spend analysis of leaf springs procurement

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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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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

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sin

ess

of

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en

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C P

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200.

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300.

00

400.

00

500.

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600.

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700.

00

6.20

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44.

2004

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005

4.20

05-3

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6

Millions

YEA

RS

GR (INR)

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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

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0 28.5

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30.0

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0

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0

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6

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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

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ise

Per

cen

t Sh

are

of E

ach

Ven

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AB

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6

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26

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29

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25

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8.9

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15

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20

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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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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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