Spend analysis of leaf springs procurement


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Spend analysis of leaf springs procurement

  2. 2. 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
  3. 3. 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
  4. 4. 8.1 SAP 54 8.2 Price Amendment Analysis of Forging Parts 55 8.2.1 Information Aggregation 55 Price Increment Workings 55 Identification of parts from SAP 57 8.2.2 Information Analysis 59 Screening of Materials 59 Analysis of Screened Parts 60 Price Validity Date Checking 61 Identification of Price Amendments 62. Identification of Last Supply Date 63 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 Information Aggregation 68 Information Consolidation 70 Information Analysis 71 8.3.2 Preparation of Spend Matrix & Analysis 77 Information Aggregation 78 Identification of Alternate Suppliers 81 Identification of Vehicles for respective leaf spring 82 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
  5. 5. Project Report June-July 2006 -1- 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
  6. 6. Project Report June-July 2006 -2- 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.
  7. 7. Project Report June-July 2006 -3- 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,
  8. 8. Project Report June-July 2006 -4- 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
  9. 9. Project Report June-July 2006 -5- 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.
  10. 10. Project Report June-July 2006 -6- 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
  11. 11. Project Report June-July 2006 -7- 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
  12. 12. Project Report June-July 2006 -8- 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.
  13. 13. Project Report June-July 2006 -9- 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
  14. 14. Project Report June-July 2006 -10- 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.
  15. 15. Project Report June-July 2006 -11- 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.
  16. 16. Project Report June-July 2006 -12- 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%
  17. 17. Project Report June-July 2006 -13- 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. Categ ory Part No Descript n Cum rcts Cum rct val Sob (%) Base rate (Rs) Qty From t o (Rs) Vendo r 1 Vendor 2 Vendor 1 Vendor 2 Clips Small Clip Plastic Clip
  18. 18. Project Report June-July 2006 -14- 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.
  19. 19. Project Report June-July 2006 -15- 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.
  20. 20. Project Report June-July 2006 -16- 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.
  21. 21. Project Report June-July 2006 -17- 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
  22. 22. Project Report June-July 2006 -18- 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
  23. 23. Project Report June-July 2006 -19- 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
  24. 24. Project Report June-July 2006 -20- 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
  25. 25. Project Report June-July 2006 -21- 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
  26. 26. Project Report June-July 2006 -22- 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.
  27. 27. Project Report June-July 2006 -23- 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.
  28. 28. Project Report June-July 2006 -24- 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.
  29. 29. Project Report June-July 2006 -25- 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.
  30. 30. Project Report June-July 2006 -26- 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
  31. 31. Project Report June-July 2006 -27- 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
  32. 32. Project Report June-July 2006 -28- 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.
  33. 33. Project Report June-July 2006 -29- 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
  34. 34. Project Report June-July 2006 -30- 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.
  35. 35. Project Report June-July 2006 -31- 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
  36. 36. Project Report June-July 2006 -32- 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
  37. 37. Project Report June-July 2006 -33- 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.
  38. 38. Project Report June-July 2006 -34- 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.
  39. 39. Project Report June-July 2006 -35- SteelPriceFluctuation 638 518517517514510 503 516 756753 744 696 670 599 611 621 615615 607 620 636 494 489487 474472 433 422 428 474472 461 446446 462460 547 614 503 493 545 598 619 650 635 SteelCoil, 538 655 668 680 740 729 676 664 647649 RolledSteelPlate, 646651 725 706 649 739 746750 608 RolledSteelCoil 613 447Rod 631 Sections 612 602602 594 596608 536 566 606 615 651 634632 400 500 600 700 800 Jan-05Feb-05Mar-05Apr-05May-05Jun-05Jul-05Aug-05Sep-05Oct-05Nov-05Dec-05Jan-06Feb-06Mar-06Apr-06 Month&Year Price(US$/tonne)
  40. 40. Project Report June-July 2006 -36- 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
  41. 41. Project Report June-July 2006 -37- 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
  42. 42. Project Report June-July 2006 -38- 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
  43. 43. Project Report June-July 2006 -39- 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.
  44. 44. Project Report June-July 2006 -40- 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.
  45. 45. Project Report June-July 2006 -41- 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.
  46. 46. Project Report June-July 2006 -42- 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.
  47. 47. Project Report June-July 2006 -43- 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
  48. 48. Project Report June-July 2006 -44- 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.
  49. 49. Project Report June-July 2006 -45- 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
  50. 50. Project Report June-July 2006 -46- 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.
  51. 51. Project Report June-July 2006 -47- 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
  52. 52. Project Report June-July 2006 -48- 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
  53. 53. Project Report June-July 2006 -49- 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
  54. 54. Project Report June-July 2006 -50- Diagram 7.2 PURCHASING CYCLE Establish Procurement Need Order Preparation Market research/ Source selection Follow up Receiving & Inspection Invoicing & Payment Scrutiny of purchase requirement
  55. 55. Project Report June-July 2006 -51- 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
  56. 56. Project Report June-July 2006 -52- 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.
  57. 57. Project Report June-July 2006 -53- 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
  58. 58. Project Report June-July 2006 -54- 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
  59. 59. Project Report June-July 2006 -55- 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. 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.
  60. 60. Project Report June-July 2006 -56-
  61. 61. Project Report June-July 2006 -57- 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. 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.
  62. 62. Project Report June-July 2006 -58- 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
  63. 63. Project Report June-July 2006 -59- 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 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
  64. 64. Project Report June-July 2006 -60- 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. 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.
  65. 65. Project Report June-July 2006 -61- 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 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
  66. 66. Project Report June-July 2006 -62- 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. 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.