Strategic Supply Chain Report for Tata Motors - Case Study Example

Strategic Supply Chain Report - Tata Motors - Total Number of Words 571 Executive Summary To increase the chances wherein Tata Motors can have more competitive advantages as compared to its close competitors, this report strongly recommends the need for the company to observe just-in-time (JIT) delivery practices. To do so, Tata Motors should invest on technologies like SAP or VCM to ensure that its procurement is centralized. To cut down on unnecessary costs, Tata Motors should keep its inventory level low. Table of Contents Executive Summary …………………………………………………………………….. 2 Table of Contents ……………………………………………………………………….. 3 1. Background to Organization ……………………………………………………. 4 2. Major Strategic Decision ……………………………………………………….. 4 3. Competitive Advantage Strategy Analysis …………………………………….. 6 4. Strategic Supply Chain Strategy ……………………………………………….. 7 5. Recommendations ……………………………………………………………… 8 References …………………………………………………………………………… 9 - 11 Appendix I – Tata Motors’ Assembly Plants in India …………………………………. 12 Appendix II – Global Locations of Tata International …………..…………………….. 13 1. Background to Organization Established back in 1945, Tata Motors is currently one of India’s biggest automobile company and the fifth biggest truck manufacturer around the world (Tata Motors, 2014a). As one of the global leaders in automobile manufacturing, Tata Motors has been active in exporting both private passenger cars and commercial vehicles such as buses, coaches, trucks, and vans throughout Argentina, Europe, Thailand, Russia, South Africa, South America, South Asia, South Korea, and the United Kingdom (Tata Motors, 2014a, 2014b). Likewise, it is also surpising to know that Tata Motors is also manufacturing vehicles for military purposes (Tata Motors, 2014c). Today, the leading competitors of Tata Motors include the following automobile brands: (1) Ashok Leyland; (2) Chevrolet; (3) Honda; (4) Hyundai; and (5) Maruti Suzuki among others. 2. Major Strategic Decision As one of its business strategy, Tata Motors was able to successfully establish several assembly plants in six (6) different geographical areas throughout India (i.e. Dharward, Jamshedpur, Lucknow, Pantnagar, Pune, and Sanand) (Tata Motors, 2014d). Across the world, Tata Motors operate and maintains several assembly plants in Argentina, Thailand, South Africa, South Korea, and the United Kingdom (Tata Motors, 2014a). (See Appendix I – Tata Motors’ Assembly Plants in India on page 12; Appendix II – Global Locations of Tata International on page 13) As a strategic alliance, joint venture is all about allowing two (2) different companies to share profits, business losses and liabilities, and management control (ABA Publishing, 2010, p. 1). In the process of entering into joint venture agreement, a manufacturing firm can easily expand the size of its global network (Carnovale and Yeniyurt, 2013; Idris and Tey, 2011), increase its sales and profit (Idris and Tey, 2011), and further improve the quality of its existing products and services through technology sharing (Idris and Tey, 2011; Nam, 2011; Naranjo-Valencia, Jimenez-Jimenez and Sanz-Valle, 2011). For instance, back in 1954, Tata Motors purposely entered a joint venture agreement with Daimler-Benz in Germany so as to penetrate the markets of commercial vehicles (The Conomic Times, 2014). To expand its market potential in UK, Tata Motors decided to acquire Jaguar Land Rover and Daimler’s brand on luxury cars from Ford Motor Company in 2008 (Zacks Investment Research, 2014). In relation to Tata Motors assembly plant in Dharwad, the company decided to enter into a joint venture agreement with Marcopolo – a Brazil-based builder of buses and coaches back in 2006 in order to improve the overall quality of its commercial vehicles like buses (Tata Motors, 2014a, 2014e). Likewise, Tata Motors also decided to enter into a joint venture agreement with Thonburi Automotive – a Thailand-based automobile manufacturer in order to improve the quality of its pickup vehicles (Tata Motors, 2014a). A couple of years ago, Tata Motors have decided to enter into joint venture with Tata Africa Holding Limited – an automobile assembly plant based in Rosslyn, North of Pretoria in order to gain access and improve their knowledge and skills on assembling semi-knocked down kits as well as light to heavy commercial vehicles (Tata Motors, 2014a). Tata Hispano Motors Carrocera S.A. is a Spanish-based bus manufacturer (Tata Motors, 2014e). As part of Tata Motor’s globalization strategy, this company decided to acquire at least 21% of Tata Hispano Motors Carrocera S.A.’s stake back in March 2005 (Tata Motors, 2014e). Specifically the term “acquisition” is pertaining to the process whereby a company would purchase the stocks of another company in order to take-over the management and business processes of the acquired company (Hubbard, 1999, p. 7). Even though partial acquisition will not provide Tata Motors the benefit of fully taking over the business management of Tata Hispano Motors Carrocera S.A., the use of this particular business strategy is still effective in terms of building a wider business network (Mahmood, Zhu and Zajac, 2011), promote international market expansion (Lee and Lieberman, 2010), and facilitate both tangible and intangible business resources (i.e. raw materials and human resources respectively) (Gubbi et al., 2010). 3. Competitive Advantage Strategy Analysis Competitive advantage is all about business strategies that can make a company earn higher profit and revenue from its investment despite the on-going tight competition in the global markets (Thakur, Burton and Srivastava, 1997, p. 69). In line with this, Naranjo-Valencia, Jimenez-Jimenez and Sanz-Valle (2011) identified “product innovation” as one of the common business strategies used in creating competitive advantage. On top of product diversification, international market expansion can also be considered as an effective way of creating competitive advantage (Kirca et al., 2011). With the purpose of expanding the potential markets, horizontal business integration is all about acquiring a business competitor or a company that manufactures the same kind of product(s) (Goldsby and Martichenko, 2005, p. 177; Kozami, 2002, p. 177). In most cases, companies may decide to go for horizontal integration as a way to penetrate a market, develop an entirely new market, or to develop a new or existing product (Kazmi, 2008, p. 153). On the other hand, vertical business integration is all about forming a business organization that aims to supply the company’s raw material requirements or to serve the marketing needs of its customers (Guan and Rehme, 2012; Kozami, 2002, p. 176). Among the possible reasons for undergoing vertical integration is to save the high cost of manufacturing raw materials (Guan and Rehme, 2012). Depending on the company’s main goal and objective, the process of going though either horizontal or vertical integration can create competitive advantage on the part of Tata Motors. Over the past few years, evidences show that Tata Motors’ decision to enter into a joint venture business agreement with Marcopolo has created more competitive advantage on the part of the company (Tata Motors, 2014e). For instance, in relation to horizontal integration, Tata Motors’ decision to enter into a joint venture business agreement with Marcopolo enabled the company increase its ability to conform with the international safety and quality standards particularly when it comes to manufacturing commercial buses (Tata Motors, 2014e). Likewise, it also enabled Tata Motors improve the use of technology (Tata Motors, 2014e). Tata Motors’ decision to enter into a joint venture agreement with Thonburi Automotive is another good example of horizontal integration (Tata Motors, 2014a). Furthermore, Nam (2011) mentioned that it is common for “technology capability gap” to occur in two (2) different companies that enters into a joint venture agreement. In the process of entering into a joint venture agreement, the company will not only increase the its ability to gain more profit but also increases the company’s ability to penetrate an entirely new market as they gain added knowledge or technology know-how from one another (Idris and Tey, 2011). Within this context, one can easily argue that a joint venture agreement can increase and further improve the company’s production capabilities (Nam, 2011). 4. Strategic Supply Chain Strategy To create competitive advantage against it close competitors, Tata Motors focused on improving its strategic supply chain strategies. For instance, as part of Tata Motors’ supply chain strategy; this particular automobile company maintains a large pool of highly reliable global suppliers. Basically, the main purpose of maintaining a large pool of highly reliable global suppliers is to ensure that the company can have more bargaining power to demand not only a specific delivery schedule but also control the quantities of its inbound or outbound logistics (Ben-Daya, Asad and Seliaman, 2013). To ensure that Tata Motors will regularly have sufficient supply of metals, the company purposely entered into vertical integration to establish both Tata Steel and Tata International (Tata Motors, 2014f). With regards to its other long-list of vertical integration, Tata Motors also purposely created the following companies: (1) Tata Motors for its engineering services needs; (2) Rallis and Tata Chemicals for its chemical requirements; and (3) Tata Communications and Tata Consultancy Services for its information technology and communications needs (Tata Motors, 2014f). 5. Recommendations Generally speaking, it is crucial on the part of strategic manager to know more about the cost relationship between inventory and production management because it can significantly affect the overall profitability of the company. This report strongly recommends the need to create organizational culture that practices just-in-time (JIT) delivery. As a universal rule, supply chain manager should be able to effectively match the supply of raw materials with its current demands. Therefore, centralization is essential. By carefully observing the importance of JIT delivery, automobile manufacturing company like Tata Motors can save a lot of unnecessary expenses related to warehousing and unnecessary manpower. Likewise, the application of this particular supply chain strategy can make Tata Motors reduce the risk of losing money out of depreciating and obsolete raw materials. To avoid the risk of having a large inventory of out-dated raw materials and the high cost of maintaining large warehouses, Tata Motors should make it a habit to maintain low levels of inventory. On top of building strategic subsidiaries through joint-venture, the use of procurement technologies such as SAP and VCM is necessary in order to make it possible for Tata Motors to centralize the network of its daily procurement. References ABA Publishing. (2010). Joint Ventures in the International Arena. Illinois: ABA Publishing. Ben-Daya, M., Asad, R. and Seliaman, M. (2013). An integrated production inventory model with raw material replenishment considerations in a three layer supply chain. International Journal of Production Economics, 143(1), pp. 53-61. Carnovale, S. and Yeniyurt, S. (2013). The role of ego networks in manufacturing joint venture formations. Journal of Supply Chain Management, 50(2). DOI: 10.1111/jscm.12015. Goldsby, T. and Martichenko, R. (2005). Lean Six Sigma Logistics: Strategic Development to Operational Success. Florida: J. Ross Publishing Inc. Guan, W. and Rehme, J. (2012). Vertical integration in supply chains: driving forces and consequences for a manufacturers downstream integration. Supply Chain Management: An International Journal, 17(2), pp. 187-201. Gubbi, S., Aulakh, P., Ray, S., Sarkar, M. and Chittoor, R. (2010). Do international acquisitions by emerging-economy firms create shareholder value? The case of Indian firms. Journal of International Business Studies, 41(3), pp. 397-418. Hubbard, N. (1999). Acquisition Strategy and Implementation. Hampshire: Macmillan Press Ltd. Idris, A. and Tey, L. (2011). Exploring the motives and determinants of innovation performance of Malaysian offshore international joint ventures. Management Decision, 49(10), pp. 1623-1641. Kazmi, A. (2008). Strategic Managememt & Business Policy. 3rd Edition . New Delhi: McGraw-Hill Companies. Kirca, A., Hult, T., Roth, K., Cavusgil, S., Perryy, M., Akdeniz, M., et al. (2011). Firm-Specific Assets, Multinationality, and Financial Performance: A Meta-analytic Review and Theoretical Integration. Academy of Management Journal, 54(1), pp. 47-72. Kozami, A. (2002). Business Policy and Strategic Management. 2nd Edition. New Delhi: Tata McGraw-Hill Publishing Company. Lee, G. and Lieberman, M. (2010). Acquisition vs. internal development as modes of market entry. Strategic Management Journal, 31(2), pp. 140-158. Mahmood, I., Zhu, H. and Zajac, E. (2011). Where can capabilities come from? network ties and capability acquisition in business groups. Strategic Management Journal, 32(8), pp. 820-848. Nam, K.-M. (2011). Learning through the international joint venture: lessons from the experience of China’s automotive sector. Industrial and Corporate Change, 20(3), pp. 855-907. Naranjo-Valencia, J., Jimenez-Jimenez, D. and Sanz-Valle, R. (2011). Innovation or imitation? The role of organizational culture. Management Decision, 49(1), pp. 55-72. Noronha, C., Rodrigues, C., Kamath, G. and Rao, N. (2013, July). The page turns for a company recast. [Online] Available at: http://www.tata.com/article/inside/1JavBO6cscI=/TLYVr3YPkMU= [accessed 14 March 2014]. Tata Motors. (2014a). Company Profile. [Online] Available at: http://www.tatamotors.com/about-us/company-profile.php [accessed 14 March 2014]. Tata Motors. (2014c). Defence Solutions. [Online] Available at: http://www.tatamotors.com/vehicles/defence/defence.php [accessed 14 March 2014]. Tata Motors. (2014d). Manufacturing. [Online] Available at: https://www.google.com.ph/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0CCgQFjAA&url=http%3A%2F%2Fwww.tatamotors.com%2Fabout-us%2Fmanufacturing.php&ei=fW0iU7brCMiGogTK5ILAAw&usg=AFQjCNHlYTx3QtuZFMC_KugEnJ3LJqmj7A&bvm=bv.62922401,d.cGU [accessed 14 March 2014]. Tata Motors. (2014b). Official Website. [Online] Available at: http://www.tatamotors.com/# [accessed 14 March 2014]. Tata Motors. (2014f). Tata in South America. [Online] Available at: http://www.tata.com/tataworldwide/index/Tata-in-South-America [accessed 14 March 2014]. Tata Motors. (2014e). Tata Marcopolo Motors Ltd. (TMML). [Online] Available at: http://www.buses.tatamotors.com/about-us/collaborator.aspx [accessed 14 March 2014]. Thakur, M., Burton, G. and Srivastava, B. (1997). International Management: Concepts and Cases. New Delhi: Tata McGraw-Hill. The Economic Times. (2014). Tata Motors Ltd. [Online] Available at: http://economictimes.indiatimes.com/tata-motors-ltd/infocompanyhistory/companyid-12934.cms [accessed 14 March 2014]. Zacks Investment Research. (2014, March 6). Tata Motors, Bladex, Tesla Motors, Toyota Motor and Daimler highlighted as Zacks Bull and Bear of the Day. prnnewswire. [Online] Available at: http://www.prnewswire.com/news-releases/tata-motors-bladex-tesla-motors-toyota-motor-and-daimler-highlighted-as-zacks-bull-and-bear-of-the-day-248748321.html [accessed 14 March 2014]. Appendix I – Tata Motors’ Assembly Plants in India Assembly Site Year Established Capacity R&D Number of Assembly Lines Division(s) Product Line Dharward (Karnataka) 2006 Yes Bus Division & Coach Division Buses & Coaches Jamshedpur (Jharkhand) 1945 822 acres Yes 2 Truck Division & Engine Division Trucks, Engines, & Military Vehicles Lucknow (Uttar Pradesh) 1992 - Yes Engineering Research Centre; Service Set-Up Division Bus Division Commercial Vehicles like Buses Pantnagar (Uttarakhand) 2007 953 acres No - - Mini Truck, Passenger Cars Pune (Maharashtra) 1966 - Yes 4 Production Engineering Division Utility Vehicles, MCV, HCV, LCV, Passenger Cars Sanand (Gujarat) - - No - - - Source: Tata Motors, 2014a Appendix II – Global Locations of Tata International Source: Noronha et al., 2013 Read More