ERP Implementation at Tata Motors Essay
ERP Implementation at Tata Motors
Tata Motors Limited is India’s largest automobile company, with revenue of Rs. 1,88,818 crores in 2012-13. It was established in 1945 and is present across the length and breadth of the country. Today, it is world’s second largest manufacturer of commercial vehicles, fourth largest truck manufacturer and second largest bus manufacturer. It has over 60,000 employees guided by the company’s mission “to be passionate in anticipating and providing the best vehicles and experiences that excite the customers globally.” It has its manufacturing bases in Jamshedpur (Jharkhand), Pune (Maharashtra), Lucknow (Uttar Pradesh), Pantnagar (Uttarakhand), Sanand (Gujarat) and Dharwad (Karnataka).
The company’s dealership, sales, services and spare parts network consists of over 3,500 touch points. It also has centres for research and development in Pune, Jamshedpur, Lucknow, Dharwad in India, and South Korea, Spain and UK. It is a dual-listed company traded on both the Bombay Stock exchange and the New York Stock Exchange (September 2004). It has emerged as an international automobile company. Tata Motors has its operations in UK, South Korea, Thailand, Spain, South Africa and Indonesia through its subsidiaries and associate companies.
It launched the first indigenously developed Light Commercial Vehicle in 1986. It also introduced India’s first Sports Utility Vehicle in 1991 and the Tata Indica, India’s first completely indigenous passenger car in 1998. Tata Indica received immediate success, since it was inexpensive and comparatively easy to build and maintain. It was also exported to Europe and Italy.
Second generation of Indica, V2 was even more successful. Its huge success gave Tata Motors the financial power to take over Daewoo Motors in 2004, which in turn gave Tata Motor’s brand an international exposure. In 2005, Tata Motors created a new segment of mini-trucks by launching Tata Ace. In January 2008, it launched its People’s Car, the Tata Nano which was subsequently launched, as per the plans, in 2011 in Nepal and Sri Lanka. In 2009, it launched its globally benchmarked Prima range of trucks and the Ultra range of international standard light commercial vehicles in 2012.
Some of its other major acquisitions include Jaguar Land Rover in 2008, 21% stake in Hispano Carrocera, a famed Spanish bus and coach manufacturer in 2007, and subsequently the remaining stake in 2009. Some of its alliances include a 51:49 joint venture with the Brazil-based, Marcopolo, global leader in building of body for buses and coaches, Thonburi Automotive Assembly Plant Company of Thailand in 2006 and a joint venture with Tata Africa Holding (Pty) Ltd. set up in 2011. Tata Motors is committed to improve the quality of life of the communities in which it operates by focussing on four thrust areas – health, education, employability and environment.
The company’s support in field of education and employability is focused on youth and women, which ranges from schools to technical education institutes to facilitation of income generation. In health, the company has interventions in curative and preventive health care. Tree plantation, water conservation, creation of new water bodies and introduction of environment-friendly technologies in alternative fuels, manufacturing processes and emissions is undertaken for the goal of environment protection. It has also developed electric and hybrid vehicles both for personal and public transportation to further contribute to this cause.
Tata Motors Ltd. is a part of the business conglomerate, Tata Group, and was formerly known as Tata Engineering and Locomotive Company, TELCO. It has its headquarters in Mumbai, India and is a multinational corporation controlling 70% cumulative market share in the domestic commercial vehicle segment.
Tata Group is highly respected for its business prowess, various social and educational projects that have contributed immensely to India’s development. The charitable trusts have a 65% stake in its holding company, Tata Sons. The “Tata” brand is synonymous with “trust” – and is considered reliable and considered as providing value for one’s money. All companies within the
group pay Tata Sons a fee for using the Tata name.
Tata Motors is a key growth business for the Tata group of companies. It initially manufactured only heavy and light commercial vehicles. Its foray into passenger cars was aggressively driven by Ratan Tata, former Chairman of Tata Sons. Tata trucks dominate the Indian commercial vehicle market. However, for passenger vehicles, the numbers are not very much impressive due to problems encountered in some of its models and stiff competition in the Indian passenger car market. Tata Motors also offers the Tata Safari SUV and Tata Sumo MUV, along with a presence in the mid-size car segment with a version called Indigo.
Ratan Tata believes in targeting “the bottom of the pyramid”, a term used by Prof. C.K. Prahalad. This means that he believes in tapping the market opportunity offered by the vast and voiceless masses of India. Thus, the target market for Tata Motors is the lower middle-class to middle class Indian, who is looking to change from a two-wheeler to a car. With India’s increasing middle class population of more than 300 million people, the car has a large market. Its customers are more in the smaller towns and villages of India when compared to metropolitan and other big cities. Background of Information Technology
At Tata, IT is considered to be a global function, and this is incorporated into the management services division of the organization. Each area within the organization is provided with required IT resources and tools by the CIO, who then takes critical decisions concerning the implementation of new technologies and IT solutions. A three year plan is also drawn by him in coordination with management and Tata Technologies, fully owned subsidiary of Tata Motors, which provides business and IT services to Tata Motors. This plan determines the basic IT strategy.
The IT strategy in turn delivers strategic programs and services which supports its business growth and competitiveness. The details are then finalized in an IT balanced scorecard in which the various projects are defined for the next 12 months
and listed in order of their priority. Responsibility for execution of these plans is charged to the joint teams from IT and business. In general, a distinction is drawn between project work and maintenance activities. Tata Technologies, however is responsible for both. If needed, external advice is sought from the consultants in the relevant area. CIO also acts as an arbitrator, settling any differences of opinion regarding the long term perspectives of specific requirements after discussing with the business team.
Recent IT initiatives
Benchmark CRM (Customer Relationship Management) solutions which is used by more than 3,200 channel partners and 37,000 users to handle customer needs reflects its commitment towards its customers. Tata Motors is also expanding usage of information through analytics across the organization. It is now involved in even greater usage of eCommerce with suppliers through SAP Supplier Relationship Management (SRM) Solutions. It also strengthened the usage of IT in manufacturing, supply chain, quality and workforce management deployed benchmark ITIL (Information Technology Infrastructure Library) processes to improve the effectiveness of its services.
Reasons for implementation of ERP
Before looking at the reasons for ERP implementation, we will see the bigness of Tata Motors worldwide. It is world’s eighteenth-largest motor vehicle manufacturing company, fourth-largest truck manufacturer and second-largest bus manufacturer by volume generating $33B dollar in revenue with presence in most of countries spanning across all the continents. Tata Motors has vehicle assembly operations in India, UK, South Korea, South Africa, Thailand and Spain. There are plans to establish plants in Indonesia, Turkey and Eastern Europe. Most of the raw materials are sourced from low cost countries and then, distributed to their R&D centers in South Korea, Spain and UK, and above mentioned assembly units. Spare parts dealer network comprises of 1200 touch points. Final goods produced in the manufacturing units are distributed to the warehouses across globe as per the demand.
Before the implementation of ERP, the company was using internal legacy system. Manual dealer management system was used where every dealer managed details. Use of legacy system resulted I lack of consistent data, making availability of real time data difficult for forecasting of spare parts and raw materials, which subsequently resulted in loss of production and eventually hurting the revenues. Managing the logistics across the geographies was another big concern. The situation was exacerbated by the lack of coordination among different verticals like sales, finance and operations. With growing competition around the world, there was need to integrate and optimize the complete process.
Implementation of ERP will result in better sharing of information across the organization giving real time access to the data, better forecasting of demands reducing piling of inventories, less duplication and time wasting across the board. Also, ERP is a modular software system; it is possible to implement either a few modules (or) various modules based on the requirements of an organization. The various modules will bring in better business practices across the verticals like finance, accounts HR, operations, and project management and will enable the company to gauge customer satisfaction.
The extended benefit can be done by integrating other systems (like bar-code reader) to the ERP system through an API (Application Programing Interface). This will help to keep track of the logistics across geographies. All-in-all, procurement of raw materials, forecasting the demand, enhancing employee productivity, optimizing business processes and maintaining high networking within the company, are the major reasons for the implementation of ERP. Selection of SAP as the ERP package
Selection for SAP was done considering the large size of the company. Tata believe in installing the best of services and SAP is undoubtedly the first name for ERP. Success track with SAP software was impeccable. Service level agreements (SLAs) were signed between the management for the resolution of the issues. Also, SAP has separate automotive solutions that help companies performs the following activities:
Optimizing manufacturing and procurement This enables the company to forecast in more efficient manner to keep production in accordance with overall business requirements and future demands of the customers. This will help company to achieve Just-in-time environment which will curb the problem of inventories. It will also enable efficient use of the resources that will help the organization to achieve lean and six sigma methodologies.
This also enables the users to place customize orders and closely align model mix with market demands. Integrated solutions for planning, billing & pricing, availability checking, configuration, order processing, production, fulfillment give companies a consistent view of the sales order of the products, plans for manufacture, and study of the company’s profit. SAP} for automotive enables to integrate the activities of dealer, vendor and manufacturers for variety of activities like procurement of raw materials, selling of finished goods, tracking the raw materials and spare parts. It also helps the dealer to track the vehicles for their customers. Suppliers in all tiers can use this for packaging, labeling, and shipping of the finished goods. It helps in generating advance-shipping notifications to maximize operational efficiency and effectiveness.
Handling of Warranty claims
A lot of trade happens with OEMs, dealers and suppliers. This result in lot of paper work regarding the warranty attached to the spare parts and finished goods. Managing this warranty claims is a huge problem for the company and partners considering such a magnitude of the business. SAP software helps in segregating warranty information attached to each of the products. The report and data is available on the click. The company can analyze the details of the parts-failure and returned pattern and participation levels for a given recall campaign.
Cross team collaboration among vendors, designers and users
SAP solutions provide collaborative products like Advanced Product Quality Planning (APQP) process and ISO/TS 16949 that increase the collaboration between the engineers, designers, vendors, dealers and users. These are the globally accepted quality-management system that links customer satisfaction with the measurement and improvement of processes. A comprehensive tool encompassing marketing and sales integrated with vehicle and product data ensures customer satisfaction and increase collaboration through knowledge-driven interactions. SAP Dealer Business Management solution – part of the SAP for Automotive portfolio enables manage everything from procurement of service parts and accessories to sales of new and used vehicle, as well as finance and marketing. It provides tool company need to manage projects, control programs and manage resources within budget and timelines. It enables independent vendors and OEM dealers to manage their entire business when working with multiple brands and locations.
Compliance with government regulations SAP ensures that it addresses the full range of reporting requirements in compliance to the Sarbanes-Oxley Act (SOX). SOX is a United States federal law that set new or enhanced standards for global trade and customs rules, environment, health, and safety regulations.
Tata Motors Financials
India, being a developing country lacks financial resources, particularly in terms of accessibility of the financial sector to customers. Thus, there occurred a need for financial organizations catering to specific industries. The automobile industry all over the globe faces the problem of finding the right amount and source of funding for its customers. These factors clubbed together with the cyclical nature of demand in the auto industry forced automobile companies to consider captive financing arms of the parent companies to exclusively fund the parent products and also act as a catalyst for promoting their products. Tata Motor Finance (TMF), the auto financing arm for Tata Motors, was established in June 2003. This was formed jointly by the asset financing arm of Tata Finance and BHPC (Bureau for Hire Purchase and Credit) of Tata Motors. This company was a virtual entity, both divisions of which maintained their separate legal identity, and existed in the market for exclusively financing Tata Motors vehicles. Subsequently, Tata Finance merged with Tata Motors and in April 2005 and thus, TMF became a division of Tata Motors.
Critical Success Factors
Some of the factors that Tata Motors considered while implementing mySAP and eventually turned out to be critical for its success were: Improvement in sales revenue or the net sales
Reduction in cost, that primarily resulted from more efficient use of hardware resources that in turn eliminated the need for additional resources Reduction in inventory
Improvement in the productivity by means of enhancement of overall business efficiency Enhancement organization-wide communication that would enable management to take decision and react more quickly to business needs Improvement in level of satisfaction of business users due to faster server response time No negative impact on other ongoing critical upgrade and implementation projects
SAP Implementation: Methodology and Process
SAP Version 3.4 implementation was successfully carried out during the commencement of SAP implementation in TATA Motors in the year 1997. Six years later i.e., in 2003, it is upgraded to SAP Version 4.6 where Human Resource services and Production Planning modules were completely set to be functionally integrated. A total of 3000 employees were planned to use this system. In total about 20 modules were implemented. The following benefits were immediately realized:
Production scheduling improved and a few bottlenecks in production were taken away VCM which is the legacy ERP at the vendor end was integrated during the upgrade Significant reduction in Inventory costs.
The implementation methodology followed was SAP’s Phased ERP implementation methodology. This project implemented by SAP is the largest (in magnitude) in India. Five servers are functionally integrated to perform as one functional server. The details are covered in later sections of this project. The following diagram indicates Tata Motors’ motive behind this ERP implementation1
mySAP SRM 40 ERP implementation at Tata Motors was named Project VECTOR which is aimed at increasing negotiating power with suppliers, increasing the ease for the suppliers to integrate using catalogue management, evaluation of new suppliers and delivery schedules of current suppliers ,usage of live auctions for competitive pricing. The ERP implementation also helped in streamlining the process of procurement and automation of the same. The ERP is centralized across the 4 locations Lucknow, Mumbai, Jamshedpur and Pune. The suppliers collaborated and this reduced the procurement efforts in following up of orders. The collaboration thus is possible through internet and automated updates on the status of procurement.
SAP’s ERP implementation in TATA Motors included Change Management as a part of the contract. It is noted that due to the huge number of employees to be trained (about 3000) and due to the magnanimous size of the client’s organization, SAP chose to phased methodology of ERP implementation at TATA Motors. During the initial phases SAP consultants were actively involved with strategic management of both Tata Engineering and Tata Technologies which are constituent firms of Tata Motors. The steering committee included senior Tata employees from Chairman’s office, Corporate Affairs office, Jemshedpur plant, Pune, Mumbai and Lucknow divisions. Project managers were appointed from Tata Technologies. The project is presented to the employees in such a way that the ERP technology would help the employees (and company) to uncover the unused value hidden in collaborative purchasing and supply chain maintenance.
People from the four important locations of TATA Motors i.e Mumbai,Pune,Jemshedpur and Lucknow are shown successful implementation of pilot project in phase 1 where 4 vendor are chosen and 4 different products are chosen for ERP implementation. SAP anticipated long term business relationship with TATA Motors and this was evident from the friendly nature of SAP Consultants working with TATA employees. Due to such amicable environment created during the critical stages of ERP implementation, TATA employees believed in the true value of ERP implemented to better their supply chain management strategies and worked actively for the successful implementation of the same. Benefits Accrued due to implementation of SAP ERP at Tata Motors
TATA Motors successfully implemented ERP in a phased methodology and the following are a few significant benefits accrued by the organization. The SAP ERP services experts delivered measurable improvements across Tata Motors’ extensive IT landscape within only 12 months. By optimizing disk management, for example, Tata Motors now has 2.3 terabytes more storage space available, and CPU utilization has been reduced by 20%. Response time of production servers is 20% faster, and the team was able to optimize many of the company’s customized programs up to the 50% level.
Disk-space optimization activities were carried out by IBM with timely support from the company’s data center. Significantly, the company achieved all of these improvements while the system load actually increased by 20%. Company executives also point to tangible business benefits that go beyond the performance numbers. Faster response time, for example, has boosted user satisfaction while saving the company some 1,600 labor hours each month. And more efficient use of existing resources has saved the company an estimated Rs 45 million (US$ 1 million) by eliminating the need for additional hardware. In addition to optimization at the technical front, the SAP ERP services helped Tata Motors to make sure a successful implementation of warranty management software that was world-class.
The integration of the company’s SAP ERP application with the dealer customer relationship management functionality is another achievement of the new system. This has made the company capable to monitor all open, new and processed warranty claims in an automatic manner. SAP ERP supported both strategic and operational objectives at Tata Motors. For example, the project helped in the creation of a stronger synergic relationship between the company’s business and IT divisions. It also extended SAP’s role from software vendor to trusted partner and the senior officials were eyeing towards more value add services in the future.
Strategic and Financial benefits
Saved Rs 45 million (US$ 1 million) due to more efficient use of existing hardware resources that eliminated the need for additional resources The management was enabled by the use of SAP to react in a more efficient and quick manner to the business needs Increase in the efficiency of the overall business process
Helped ensure success of projects related to critical upgrade and implementation Improved satisfaction of business users as a result of faster server response time Business transactions speed was hugely accelerated
Key Performance Indicator for the Operational Benefits
Production server response time
Optimization level of customized programs
Up to 50%
Labor hours saved
1,600 per month
Available disk space
Current Status of ERP in TATA Motors
At present SAP MaxAttention module is implemented to their ERP system. This is a move through which TATA Motors can directly call in SAP Experts on demand and engage them on-call duty to support ERP issues at critical times which include but not limited to an additional software upgrade , a future software go-live event, performance optimization testing, volume testing. This MaxAttention is currently being implemented in conjunction with SAP Enterprise Support Service for which license is renewed annually.