Tata Indica - The Making Of The Small Car

THE OUTSOURCING STRATEGY

For Telco, outsourcing seemed to be one of the most difficult aspects of producing the Indica. Unlike global automobile majors, Ford Motors or General Motors, which had a global vendor-base that could be replicated on a smaller scale in India, Telco had to create a vendor-base from scratch. Moreover, it did not have the expertise either to design a car or to build an engine for it.

Against this background, Telco had to take its primary ‘make-or-buy'decisions for the key inputs-design, engine, and transmission. Telco decided to shop globally for the best deals and use its own expertise to make whatever modifications were needed (Refer Table III for the components outsourced by Telco).

TABLE III
OUTSOURCING THE COMPONENTS

Components	Supplier
5 door hatchback	I.DE.A, Italy
Engine	Institut Francais du Petrol, France
Assembly Line	Nissan's Plant, Australia
Presses	Mercedes Benz
Pistons and Piston rings	India Pistons
Electrical components and fuel injection systems	Lucas-TVS
Steering systems	Rane TRW Steering Systems
Clutch facings and rear (drum) brake linings	Sundaram Brake Linings (SBL)
Seating Systems	Tata-Johnson Controls
Radiators	Tata-Toyo
Rear view mirrors	Tata-Ficosa
Front and rear bumper, dash-board, inside trims	Tata-Auto Plastics
Air conditioning kits	Subros Ltd
Wind screens and windows	Asahi Glass
Fuel lines	Imperial Auto
Differential assemblies	Sona Steering
Sheet metal items	JBM Tools

Source: Business Today, March 22, 1999 and December 7, 1999.

Telco turned to the Italian company, I.DE.A, for the product-design. It bought the engine from the Institut Francais du Petrol of France, and applied its engineering skills to adapt the engine requirements. The transmission was developed in-house at its Engineering Research Centre (ERC), at Pune. Of the Rs 2.5 billion it spent on designing the Indica, the major share went in buying design tools and training its engineers in new skills. Telco's engineers traveled regularly to the sites of its technology suppliers, to receive training before the actual delivery of the machines.

Telco also outsourced its assembly line from Nissan's plant in Australia for just Rs 900 million. Telco transplanted it at its factory at Chikli near Pune, which was newly set up for Indica. A new assembly line of the same proportions would have cost at least Rs 4 billion. Again, of the 3 presses for the Indica, only 1 was new, acquired for Rs 900 million, while the other 2 were bought second-hand from Mercedes-Benz and modified to suit the Indica.

Telco's engineers and the ERC did the application engineering, programming, installation, and commissioning to save around 45% of the technology costs. The tooling for the car too was supplied internally by Telco's machine tool division. To manage the supply chain better, Telco kept the number of suppliers for Indica to just 200 as compared to about 1,000 for trucks. Most of the parts were supplied by Telco's traditional suppliers— TVS, Rane Group and Tata Auto Component Systems (Taco) who were single source suppliers. Pressed parts, assemblies, and drive shafts were sourced from single vendors.