NANO - Innovation in Automobile
On 10th of Jan 2008 the world saw the launch of the cheapest car, not from Japan or Detroit (who are know as the technology leaders in automotive), but from India. This car is not only going to revolutionize the automobile industry, but also the entire manufacturing industry. This car is going to be an inspiration for many and is the best example of Innovation and optimizing cost to fuel growth.
The company undertook the transformation journey few years back when it saw huge losses of $110 million in 2001 and today is set to change the rules of the game with the introduction of Nano. The learning from this is that Impossible is Nothing and companies need to constantly innovate.
Nano (entry model) is priced at $2500, (which is the cost of a DVD player in Lexus) and half the cost of the next cheapest car in India. To manufacture a product at such low cost you need high volumes but this alone is not enough, there are many innovation in this product which have helped-
a. Distributed manufacturing - plans are to encourage entrepreneurs to have small assembly units as this would bring down the distribution cost (ship SKD) and also the dealer margin
b. reduce cost of component by increasing volumes - In addition to high volumes from product sales, the volumes of components can be increased by designing keeping in mind reduction in part count by symetric design for e.g. the handles in Nano are same on Left and Right increasing the volume of this component by twice, similarly the instrument cluster is in the center so that same dash board can be used in left hand drive and right hand drive cars
c. Innovative design - all possible avenues have been looked at for reducing the weight of the car like the Mono Volume design, tubeless tyres, single balancer shaft for twin cylinder - all of these have reduced cost.
We have heard of lean manufacturing and the same concepts have been applied to design - Lean Design.
d. Locational advantage - The manufacturing location identified is one that will get them the maximum incentives from the government that can be passed on to customers, yet be closer to port and sorce of raw material.
All this has enabled the company to Create Globally Competitive Cost Structure and Create new Offerings for price sensitive markets.
New markets can bring with it a lot of challenges for e.g. providing service to customers - India is a country where there is 1 car per 1000 house hold (unlike US where its 2 per house hold) and majority of the country stays in non urban or rural locations where service infrastructure may be unviable, thus company is considering providing service at door step like the insurance industry through trained / certified personnel's.
Low cost car would also require low cost of maintenance and this possibly would get addressed by keeping cost of spare parts low and this could also impact the the insurance cost which is likely to be one third ($63 per year) as compared to the next cheapest car in India.
Nano is not competing with other cars or two wheelers, it is going to open up a whole new segment in India and India like countries and this would need a whole new approach to managing customer experience. Company would have to look at various distribution model to service markets in India and internationally and building loyalty.
Challenges - with increasing cost of crude oil (which could see over $150 to a barrel in 2 years), operating cost of this car could become unaffordable. The company should therefore start looking at alternate fuel for e.g. CNG, LPG, battery or methanol for long term sustenance.
One thing that pleases me most is that this has shown others a way, and many more innovations can be seen in days to come as corporates would question their current way of doing things. Constraints bring out the best and CK Prahalad calls this the process of Constrained Innovation.
Comments
When I first read of Nano, what struck me was the article below:
In 1933, Adolf Hitler submitted sketches to Porsche of a proposed "Volks-Wagen" ("People's Car"), a basic vehicle that should be capable of transporting two adults and three children at a speed of 100 km/h (62 mph). The People's Car would be made available to citizens of the Third Reich through a savings scheme at 990 Reichsmark, about the price of a small motorcycle at the time (an average income being around 32RM/week).
Hitler's commissioning of the "People's Car" did not necessitate a clean-sheet car design. Ferdinand Porsche formulated the original parameters of a car design similar to the final production version of the Beetle several years before it was commissioned, and had built working prototypes by 1931.Erwin Komenda, Porsche's chief designer, was responsible for the design and styling of the car. Production only became financially viable, however, when it was backed by theThird Reich. War broke out before the large-scale production of the "People's Car" could commence and manufacturing capacity was shifted to producing military vehicles. Production of civilian VW automobiles did not start until after the post-war occupation began.
This is a vision, I do not under estimate Tata’s vision of being a shrewd business man, who wants to keep his Company profile high in the minds of the people. This is yet another genuine idea to advertise at product’s own cost. We did see the Indica being born when Foreign players were painting the Indian Roads, more so we saw a replica of the other markets in the form of Ace, yet another imitated (copied) entry into Indian roads, it was covering certain vacuum and earning the name using the product.
This is yet to surpass the reach, depth and vision created by the Beetle. We expected something greater from Tata to better that German vision.Tata has done a fair exercise, he has (under)priced the product and made it innovative in terms of present pricing trends. Has Tata really produced a car which gives real value for money and cheap??
When the nation and the world was focussing on entrants who want to cater to the growing rich, our country is being used to underprice products globally. Reduce overheads for the competition and increase margins. Genuine good to the mass public is yet to be worked on. Tata is trying yet to do.
During this time or back drop a launch of such nature is definitely an eye catcher, and wooer of the aam janatha. Only time will unfold certain stories which are behind the scenes,
a) The wait for the product
b) The deferred price increase of product
c) The woes of the vendors and Dealers
d) The safety, quality and ruggedness of the vehicle to suit the Indian conditions
e) Sustenance to the image.
The end users in India have always been guinea pigs. Most of the products of Tata had made use of the end user. I have not come across one Indian Company which boldly advertised that the product needs a change and that it would be done at the Company’s cost and being apologetic of it, what ever was done it was always done behind closed doors and very secretively.
What is even more worrying is the Party politics in this, begging for allotments and singling out needs. Shame, we should only encourage the Company to be more focussed and quote examples to emulate to become Historic. Politicians should help Companies to go for the masses and serve it. Are they trying to build their image by gaining allotments for the Janatha. What was Maruti then is Nano now, maybe with a few trimmings here and there. World is open today.
Should not Nano be historic like the Beetle. I would like Nano to better it.I think Tata has to work more to better the best.
Posted by: micky chappel | February 20, 2008 06:17 AM
Micky, that's a fascinating description of the history of Volkswagen.
You are right that the reach and impact of the legendary VW Beetle were truly breathtaking. The Beetle caught the imagination of, and had a profound impact on the lifestyle of several generations worldwide. It is generally held to be one of the most iconic products of all time.
The Nano is still (barely) a fledgling, and hasn't had a chance to find its feet in the market. However, it appears to be positioned to appeal to the market segment it is designed to serve. To hold it to the dazzling standard of the Beetle may be premature at this time.
So let's give the Nano a chance, and who knows - maybe it is destined for glory, if not on the scale of the Beetle, at least in a more modest way!
Posted by: V P Kochikar | February 22, 2008 11:38 AM
Micky, great explanation of the Beetle. I agree with you that VW beetle was the first peoples car and is a Legend and has a Cult following. It will take a long time for any car to reach the level of popularity and success it did.
As Kochikar says, lets give Nano a chance.
What impressed me is the no. of innovations that made this possible and that most of it done locally. Having spent a long time in the auto industry and seen the difficulty and resistance when you talk of reducing the cost structure, I find this effort commendable. What NANO has done is broken paradigms - untill this was unveiled in Jan this year other manufacturers thought they were doing the best and it was not feasible to make a car cheaper. I have earlier mentioned about some of the things that helped reduce the cost, lets us look at a few more examples which i think are innovative -
>> Having the instrument panel in the center of the dash board which gives the flexibility to use the same dash board for LH and RH drive
>> Eliminating the anti glare on the instrument cluster by maintaining the curve which eliminates the need for one
>> the assembly line is designed by a bangalore based firm at half the cost and can roll out an engine every 40 sec..
Nano was displayed in Geneva last week and there too the response has been good, which also breaks the mindset and proves that emerging economies can be excellent base for outsourcing Engineering Services.
Posted by: Naveen | March 10, 2008 10:51 AM
Tata's have been the forerunners of Indian business and with the introduction of Tata Nano, they have created not only a mobile luxury for millions of Indian dreams but also brought forward the innovative potential of Indian automobile sector before the world. Enough food for thought to all to work for bringing India to a stronger position in today's competitive market dominated by other Asian giants. The road is long to go but the effort has already begun...
Posted by: Anjali | July 23, 2008 08:19 PM