Tata Indica - The Making Of The Small Car

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The Story of Indica

In the early 1990s, Telco's Chairman Ratan Tata (Tata), was flirting with the idea of developing a small car. By mid-1994 a rudimentary design was in place. In 1995, Telco announced that it planned to build a car which would be priced close to the Maruti 800, shaped like the Zen, and spacious as an Ambassador. Producing the new small car - Indica - represented a different kind of challenge for Telco. Should Tata succeed, he would change the face of Telco. As a truck-maker, Telco was so integrated that it even made it own castings and forgings. As an automaker, it would have to focus on the value chain that stretched between raw materials and after-sales service as well as assembling the parts into the complete automobile. For its new venture, Telco outsourced 80% of the components (1,200 of its 1,500-plus parts), from 200-odd vendors. To develop the Indica, Telco had to combine the learnings from its predecessors with its own unique supply chain management strategies to ensure a sustainable low-cost platform.

By learning to build and manage a supply chain, it would set the ground for leveraging the capabilities of the automotive component-manufacturers who already operated in its target markets. In other words, Telco planned to use its skills as an integrator--bringing together products and services from both upstream and downstream operations, and packaging them for the customer under a brand name in its new venture. Globally, a car could be built in 48 months with an investment of US $ 3 billion (Rs 127.5 billion). Indica, was built in 31 months on a budget of Rs 17 billion. This seemed to have been possible by focussing on the supply chain.

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).

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