Ratan Tata’s gut reaction when he saw the Financial Times story in 2003 – that Tatas were planning to manufacture a Rs 1 lakh car – was to issue a rebuttal, to clarify that that was not quite what his casual comment at the Geneva Motor Show meant. Then he thought that the figure had sprung from what he had mentioned about an affordable car at around $2,500 being on the company’s agenda for the future. So why not just take that as a target, he decided, but the people at Tata Motors were aghast, narrate Philip Chacko, Christabelle Noronha, and Sujata Agrawal in ‘Small Wonder: The making of the Nano’ (Westland).
“The cost element was what made Ratan Tata conceptualise, at the embryonic stage of the project, a ‘rural car,’ a frugal automobile that would have to make do without doors and windows and probably have plastic curtains that rolled down. That would make it little more than a four-wheel version of the auto-rickshaw, a cheap and popular mode of transport in many parts of South and South East Asia.” He had visualised also ‘a car created by engineering plastics and new materials, the use of aerospace adhesives instead of welding, and making one part perform multiple functions.’
Rewinding to early 2005, one gets introduced to the mule, the first version of the small car that awaited Ratan Tata at the Tata Motors test track in Pune. It was ‘fitted with a single-cylinder engine sourced from the local market and was, as those present remember it, as sophisticated as a jalopy.’ How Ratan Tata settled his big frame into the contraption is a mystery, but there was no doubting his state of mind after he got himself out of the car, the book chronicles. “‘I should not have driven this,’ he said.”
Plastics vs metal
As the idea of the Nano began to get crystallised, the engineers realised the need ‘to pack a more solid punch,’ to deliver ‘a car as everyone expected a car to be, not some ersatz pretender.’ And many ideas had to crash when meeting the harsh realities of cost-benefit analysis head on. For instance, the plastics idea was discarded, one learns, because painted plastics (for, say, the doors and bonnet) would have been more expensive than steel for the large volumes visualised for the small car.
“The cost threshold was Rs 100- Rs 105 a kilo, the price for sheet metal that Tata Motors had arrived at. Try as it might, General Electric could not reduce the price of its engineered plastic below Rs 140 per kilo, this after the company’s chairman, Jeff Immelt, had met Ratan Tata in May 2006 and urged him to give his people another chance to crack the cost code.”
Though Ratan Tata was disappointed that the Nano could not make extensive use of plastic components, the endeavour had not been fruitless, the authors observe. “The small car’s engineers had learned plenty about the capabilities and limitations of plastics and, more importantly, the quest had resulted in the reduction of sheet metal costs.”
Distributed manufacturing
Another idea that did not find traction was the option of distributed manufacturing, wherein a mother plant would manufacture the important components and transport these to satellite sites for assembling; and a low-cost, low-breakeven-point production unit designed by the company would be given to entrepreneurs willing to invest in the facility. This path-breaking concept would have meant channel partners, the generation of jobs across the country, greater customisation of the car and a slashing of logistics costs, but the company realised the potential for problems and the difficulties of assuring consistency in quality, and therefore kept aside the idea for exploration at a later date.
In the area of outbound logistics, a key concern was to bring down the price paid to reach the vehicle to a selling point, considering that the cost of transporting a car is generally ‘almost six times that of a two-wheeler.’ That would have meant Rs 2,200 to Rs 2,300 to transport a Nano, and so the marketing team worked on ‘a minor miracle to bring down the cost down to about twice what it takes to transport a two-wheeler.’ The trick lay in ‘assuring inbound logistics, or return loads, carting more units onto the ferrying trucks, and partnering with a single transporter.’
Cost considerations
During the design phase, cost was a constant consideration, the authors recount. An example they mention is of how the dashboard designed by the Tata Motors’ team was discarded in favour of IDEA’s integrated console. “Cost was also the reason why, initially, the car had a headrest that was built into the seat. Ratan Tata thought this gave the inside a crowded feeling, which was when a headrest with a hollow came in. All inside trims, plastic design elements that enhance the looks of the interior, had to serve a purpose. Nothing for fancy’s sake anywhere…”
Why four doors, it was argued, because a survey had revealed that people use the right-rear door only about 5 per cent of the time. Getting rid of it could bring down costs, but Ratan Tata did not agree, because he saw that as a compromise. He was, however, more accommodating in the matter of tyres, the book records. “Most cars have four tyres of the same size, but the Nano’s front tyres are smaller than its back tyres. This is to offset the extra weight of the engine at the back, balance the handling of the car and improve its overall dynamics.”
Eighteen cross-functional teams worked on the Nano, and the vehicle integration team constantly tried to integrate two, may be three functions into one. Such as, one wiper, a single casting for the engine, combination control switches and ‘three bolts, instead of four, for each tyre.’ The steering column is ‘anchored in the car’s overall structure, and that does as good a job as a collapsible steering column and at much lower cost.’ In cases like these, frugal engineering was going beyond cost reduction to take ‘a fresh look at every fundamental engineering challenge.’
Tough bargains
There were tough bargains with suppliers, as in the case of Nano’s electronic engine management system, for which the German companies Bosch and Siemens were in the running. “The Nano sourcing team had set a target price. This appeared ridiculously low when you consider that a similar system for the Indica, the hatchback from the Tata Motors stable, costs about twice that amount, but that was the nature of the pricing the team pushed for and, in most cases, secured.”
Bosch could create a stripped-down version of its system, with a reduced number of components and sensors. Interestingly, when the sourcing people wanted the supplier to quote a price for each of the system’s parts, just so they could release the purchase orders for them, the Germans were flummoxed, as one gathers from the book. “They told us they didn’t know how to get down to the figures we wanted, and no clue about what individual elements of the system would cost. They said, ‘We have committed to your price and that’s what we will give it to you for.’”
A valuable insight from the sourcing team is that costing is a reality that cannot be wished away. “Pricing may be policy, but costing is a fact. We had a target cost. We broke this down and cascaded it to every component.”
Three waves
A snatch from the project leader, Girish Wagh, captures how the team had to go through more than 8,000 ideas, bound together in three waves of cost-reduction initiatives. Everything associated with the word ‘cost’ was looked at, he reminisces. This meant direct material cost and variable and fixed conversion cost; supply chain and logistics; inspection and warranty; financing and working capital management; and taxation, interest, and depreciation, elaborates Wagh.
Giving credit to early and intense engagement with vendors, he says that cost reduction ideas were generated with the entire prospective vendor base and not just selected suppliers. “In addition, the entire vendor base was integrated through information technology to have ‘just-in-sequence’ supplies, and this helped reduce inventories. In the third wave of our cost-minimisation exercise, we revisited what we had achieved in the first and second waves…”
NVH quotient
A tricky problem that kept the engineers busy for two years was that of bringing under control the noise, vibration and harshness (NVH in automobile engineering parlance) quotient. The rear-engine placement meant the heart of the car was too close for comfort for those sitting in the back seat, and there was the noise to deal with, the authors explain. Adding more and more insulation material to reduce NVH would have sent costing into a spin. So the team ‘changed the orientation of the cylinder head by 180 degrees,’ apart from making a series of incremental improvements. “The floor panel changed 10 times. The dashboard and seats, too, went through an equal number of modifications.”
Great read that can similarly turn many of your cost presumptions by 180 degrees.
**
BookPeek.blogspot.com
