Tata Case
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Industrial Engineering
Date
Dec 6, 2023
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Uploaded by SuperTiger3944
The Tata-Nano Case
Date:
To: Ratan Tata, Chairman Tata Group
From:
Issues
:
-
Delay in the launch of Nano because of the uncertainty surrounding the Singur plant.
-
Uncertainty regarding the long term sustained profits of the Nano.
-
The questionable leadership of Ratan Tata at certain points.
-
Reputation of the Tata group at stake.
The immediate concern for the TML is the suspended production of the Nano at the Singur plant. As
the delay can affect the profitability and market share of the company, Ratan Tata has to decide
whether to shift the production to some other plant or continue to wait till the situation at Singur is
settled.
Analysis
:
Strategy
: The first mover competitive advantage of Tata can be nullified if there is a delay in the release
of Nano.
With the launch of A-star and i-20, the assumed market share of the Nano will be reduced. The
company’s strategy of not using any of its existing production plants to manufacture the Nano has not
turned out to be the right move. Moreover, the company’s strategy of promoting entrepreneurs in order
to sell the product in rural areas is questionable as those entrepreneurs would not like to compete
against Tata itself. The customer would like to buy directly from Tata than from these young
entrepreneurs.
Ethics
: TML’s plan of promoting entrepreneurs in order to reach remote areas can affect the consumers.
TML would only provide raw material supplies and training to these entrepreneurs and would not allow
them to use the TATA name. This can lead to the production of low quality products and the customers
buying the Nano from these entrepreneurs might have to compromise on the quality of the car.
Marketing
:
Ratan Tata did not rectify the miscommunication regarding the price of the car. The price of
the car was declared without estimating the production cost. With the increasing price of steel and other
raw materials, it will be difficult to maintain the price of 100,000 INR. But having promised that price to
the public, Ratan Tata cannot change it now as he has a reputation to maintain.
Sustainability
: The Nano will add to the traffic congestion in India. As the sale of the Nano increases, the
traffic congestion in India will also increase. So, after a certain period, the demand of the Nano may
decrease. The increasing price of raw materials will reduce the profit margin on Nano and it may not be
economically sustainable to manufacture it in the future.
Human Resource/ Leadership
:
Ratan Tata has only involved young engineers in the Nano project. But
there could have been more experienced engineers supervising this project. The lack of experience of
the current project team may affect the product quality. This could further affect the reputation of the
company.
Alternatives
Based on the above analysis, I would like to propose the following alternatives:
1)
Wait for the situation to improve at Singur and halt the production of Nano till that time
- This
will help in saving costs and will also enable TML to release the Nano at its intended price when
operations resume.
Risks
: The major risk with this approach is that the delay in the production of Nano will give other
competitors like Hyundai and Suzuki a chance to release their product and occupy a portion of the
Nano’s market.
2)
Shift the production from Singur to one of the existing plants
- This will help in reducing the delay
in the release of Nano. The sooner the Nano releases, the better it will be for TML’s profitability.
Risks
: The major challenge with this approach will be fulfilling the capacity for the Nano. The other
plants are devoted to manufacturing other products and burdening them with the production of
Nano might be a problem.
3)
Buy a new plant and shift the production to this new plant
- This will help to ease the operations
and will also help in reducing the delay in the production.
Risks
: The major risk with this approach is that it will involve huge costs of buying the land and of
shifting the machinery.
Final recommendation
I would give the final recommendation based on the following 3 criteria:
-
Cost effectiveness
-
Waiting period
-
Maintaining reputation
If I consider the first criterion, which is cost effectiveness, then alternative 3 can be easily ruled out
as it will be the least cost effective.(See Exhibit 1) While alternative 1 might be the most cost
effective in terms of money, but it is also associated with the opportunity cost of not using the
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already set up production plant at Singur. So based upon the first criteria, alternative 2 seems to be
the best choice.
If I consider the second criterion, which is waiting period, then alternative 1 will be the least
effective. Shifting the production to the existing plants would be the most feasible as there would
already be some machinery set up in those plants. On the other hand, identifying new land and
constructing the plant on that land will take a lot of time.
If I consider the third criterion, then alternative1 can be easily ruled out as not taking proactive
measures would easily degrade TML’s reputation. While alternative 2 and alternative 3 would both
be proactive measures but considering the other criteria, alternative 2 would be the best choice as it
is the most cost effective and it also has the least waiting period.
Final Implementation Plan
-
Call a press conference and announce that the production will be shifted to one of the current
plants.
-
Also announce that the car will continue to be priced at 100,000 INR only.
-
Request the government for a rebate on the post manufacturing tax. Getting a tax rebate would
significantly increase profit margins.( See Exhibit 2)
-
Quickly shift the machinery to the required plant and start production as soon as possible.
Appendix
Exhibit 1
Cost of choosing the alternatives
Alternative
Cost(in billions
in INR)
Alternative 1
(Assuming the plant is not used for 5 months & the monthly
rent is assumed to be 4% of the total cost)
3.4
Alternative 2
(Assuming the cost of shifting to existing plant will be 40% of
the total cost)
6.8
Alternative 3
(Assuming the cost of setting up the new plant will be equal to the cost of the current
plant. So total cost will be twice the current cost.)
34
Total cost of the Singur plant = 17 billion INR
Exhibit 2
Cost of Nano
Item
Cost (in
INR)
Engine and Transmission
30,000
Body Shell
9,000
Electricals
9,000
Suspension & Wheels
11,000
Interiors
7,500
Post Manufacturing Tax
24,000
Sales Tax
4,000
Gross Profit
5,500
Sale Price
100,000
If the post manufacturing tax is eliminated then the gross profit will increase by 24,000 INR. So Gross
profit= 29,500 INR
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