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As Ratan Tata unveiled the Rs 1 lakh[US$ 2500] car, I thought about the process which
enabled the Tata Nano to be designed at this phenomenally low price. It was done by a
The secret of designing the Tata Nano is a concept called Target Pricing or Target Costing.
Target Pricing process attempts to determine what features and functions the customer wants
in a car. Once the features and functions are finalized target costs are assigned to each and
electrical systems. The sub-teams then design the components/systems within the target cost.
They look at every bolt and nut and keep driving cost out of the components/ system.
For example the Nano has a variable transmission instead of the standard gears. It has
instrument clusters which do not have anti-glare coating and does not use screws for fixing.
This same concept, of relentless focus on costs and ‘scraping the barrel’ mentality can be
Cost and waste is driven out of supply chains by reducing inventory, eliminating waiting times
and delays, increasing utilization of warehouse and trucks, optimizing location of warehouses
and plants, drawing up the optimum transportation network, utilizing backhauls etc.
Reducing inventory reduces the working capital cost , reduces warehousing costs and
reliability of inventory replenishment will have to increased, Inventory Record Accuracy will
have to be above ~95% and supply chain length will have to be reduced.
Reducing supply chain times reduces inventory and increases responsiveness. To eliminate
waiting times and delays the complete supply chain process will have to be mapped. For this a
lead time map is used. Delays like waiting for loading or unloading and waiting for documents
can be minimized. Transit times can be reduced [ not by fast and rash driving ] but by using AC
Truck utilization can be improved by using truck optimization softwares . Similarly, warehouse
space can be utilized more efficiently by increasing storage height- by increasing the rack
Distribution Centres and warehouses- is important because 70% of the cost of a supply chain is
So while Tata Nano has created a breakthrough in car manufacture by reducing the cost of a
car significantly, it has led me to think about doing a Tata Nano with my supply chain.