Manac Project Tata Nano: Target Costing
Manac Project Tata Nano: Target Costing
Manac Project Tata Nano: Target Costing
The target costing for a product is calculated by starting with the product's anticipated selling
price and then deducting the desired profit. Following formula or equation further explains this
concept:
The product development team is then given the responsibility of designing the product so that
it can be made for no more than the target cost.
In case of Tata nano the company decided on manufacturing a car that would be affordable for
the lower segment class of the Indian population. It basically aimed at families with two
wheelers and thus came down to engineering a car that would be sold for just a lakh. Then the
target cost was exacted to about Rs 65000 per unit. A number of steps were taken to ensure that
the cost remains within the target decided such as one windscreen wiper instead of the usual
pair, No power steering, unnecessary due to its light weight, three lug nuts on the wheels
instead of the usual four, Only one wing mirror, No radio or CD player, No air conditioning etc.
TARGET COSTING
Target costing is defined as a cost management tool for reducing the overall cost of a product
over its product life cycle. Management utilizes this pricing technique to meet both the
demands of its customers as well as company profit goals.
Target costing is particularly popular among Japanese firms such as Toyota, Nissan, Toshiba and
Daihatsu Motor in various industries such as automobile manufacturing, electronics, machine
tooling, and precision machine manufacturing. As Japanese tastes became more diverse,
assembly-oriented production grew in popularity. This growing demand for a diverse range of
products shortened product life cycles. With shorter product life cycles more focus is placed on
the costs occurring at each phase (development, planning and design.)
Traditionally, a cost figure is obtained, implemented and once found to be poorly configured,
sent back to management and engineers for reworking of production processes and cutting of
costs. In comparison, target costing utilizes costing information and focuses on the best
possible price up front, preventing wasted time on after-the-fact discussions concerning design
and re-engineering of the product.
The decision making process involves a cross functional team, in which employees from various
departments (Production, Engineering, R&D, Marketing, and Accounting) are given the
responsibility of determining an acceptable market price and corresponding Return on Sales, as
well as a feasible cost in which a given item may be produced. In order to minimize costs, team
members focus on eliminating non-value-added costs of the process, improving product design
and modifying process methods.
Target costing, in particular, emphasizes the reduction of costs during the planning and design
stage of the product life cycle since the majority of product cost is determined at this stage. In
comparison to traditional product costing methods, target costing allocates more of the total
cost to the development stage, simultaneously reducing costs during the production stage. A
number of cost-engineering techniques are used in the cost reduction process. Just-in-Time,
Total Quality Control, Material Requirements Planning and Value Engineering are among such
methods promoted by target costing.
Total Quality Control is a Japanese process that initially developed in the United States as a
method of Quality Control. Inspection is the main issue that distinguishes between the two. TQC
incorporates QC (inspection) activities throughout a company, rather than in isolation within
specific departments.
Initially a project is either accepted or rejected based on marketability and cost and profit
data. Once a project is accepted, the engineering department constructs an engineering
development plan. This plan considers all aspects of product cost up-front. Target profit is then
subtracted from expected sales to reach an estimate of allowable cost. In order to successfully
reach this allowable cost, a great deal of effort is required from each department to tighten
overall cost. Individual processes are evaluated in order to direct efforts toward the most
valuable and feasible cost saving areas.
The prevalence of assembly-oriented products along with shortened product life cycles has
contributed to the success of target costing. Many firms have turned to target costing as a way
of improving the price and quality of their products, creating a benefit in terms of a company’s
profits as well as increased customer satisfaction. Target costing adds value to the production
process by eliminating non-value added activities, thus paving the way for decreased costs
passed on to the consumer. Target costing enables companies to ascertain a more realistic price
as well as strengthen competition among firms to offer quality products at lower costs.
TATA NANO – THE INTRODUCTION
The Tata Nano is a low-cost, rear-engine, four-passenger city car built by
the Indian company Tata Motors. Aimed primarily at the Indian domestic market, it is an
exemplary example of Gandhian engineering, a concept involving deep frugality and a
willingness to challenge conventional wisdom.
Tata Motors began selling its "one-lakh car" in March, 2009. The cheapest car in the world
today, with a price little more than US $2,000, the Nano is within reach of many Indian families
who could not previously afford an automobile.
In 2008 the Financial Times reported: "if ever there were a symbol of India’s ambitions to
become a modern nation, it would surely be the Nano, the tiny car with the even tinier price-tag.
A triumph of homegrown engineering, the $2,200 (€1,490, £1,186) Nano encapsulates the
dream of millions of Indians groping for a shot at urban prosperity."
Nano is the SI prefix for one-billionth, and the word is used colloquially to mean "very small".
The nickname, "one-lakh car" is due to the Nano's purchase price of near 100,000
(one lakh rupees).
No other car launch in the history of Indian auto industry has received as much global press as the
"people's car", the Tata Nano. For good reason. A report from Business Today
No other car promised to revolutionize motoring as the Nano has. Clever marketing apart, some
frugal and out-of-the-box engineering has gone into the making of Nano. BT's Krishna Gopalan
and Kushan Mitra met the Nano's design team at the Engineering Research Centre in Pune to
put together this report.
It's not yet a week since Ratan Tata unveiled his dream car at the Auto Expo in Delhi to
unprecedented global media, well, hysteria, but at Tata Motors' sprawling plant in Pimpri near
Pune, it's business as usual. There are no 'we've-done-it' banners festooned inside or outside
the plant, no puffed-up chests striding around the facility, or even smug grin on anyone's face. At
the south-western corner of the 160-acre facility, home to the Engineering Research Centre,
where a young chief engineer and his team of 500-odd engineers have slogged over the last four
years, putting in 12-14 hours a day, six days a week, there's even less of back-patting. Instead,
Girish A. Wagh, barely 37 years old, is thinking five years ahead - he's already got some designs
ready for the small car, Nano, variants that Tata Motors could offer in the years ahead.
They've just created automotive history, that too out of one of the most unlikely places on earth.
They've taken their Chairman Ratan Tata's dream - much like what Henry Ford had in the
beginning of the 20th century in the US-of offering Indians ultra low-cost cars and turned it into
a reality. The "people's car" unveiled on January 10 at the Auto Expo was stunningly good
looking for the price tag it sports: a bare Rs 1 lakh, or $2,500, for the base model. The feat has so
shaken the automotive world-from Detroit to Stuttgart to Nagoya-that Tata Motors' rivals, who
never really considered it as a serious threat in passenger cars, are scurrying back to their own
drawing boards.
That's hardly surprising. At Rs 1-lakh, the Nano is the world's cheapest car and holds out the
same promise as Ford's Model-T did when it was launched in 1908 at a price of $825, and which
is to make motoring affordable to millions of Indians when it hits the road in September or
October this year. Even its 'deluxe' model, featuring air-conditioning and power windows, won't
cost more than Rs 1.2 lakh on road-a good Rs 80, 000 cheaper than the cheapest car currently in
the country, the Maruti 800.
A BREAK THROUGH CAR
The man in charge of the small car project is Girish A. Wagh, who was also very closely involved
with the design of the Ace, a four-wheeler that serves as a load carrier. E. Balasubramoniam is
the Head of Sourcing for the project. The graduate from IIT Madras is 45 years old and was
earlier with Maruti Udyog (now Maruti Suzuki). Nikhil Jadhav, 29, is possibly the youngest
member of the team. Jadhav, an alumnus of IIT Bombay, is the designer on the small car project.
Abhay M. Deshpande is Tata Motors' Assistant General Manager-Vehicle Integration at the ERC.
Deshpande, 44, is in charge of vehicle integration, vehicle performance and chassis design.
While the Nano's design has received rave reviews, the team had to go through several
iterations before the style could be frozen. "The entire body was designed twice while the
engine was designed thrice," points out Wagh. If that sounds surprising, the floor was designed
10 times and the seats too an equal number of times. Wagh recalls that the car's dashboard had
two concepts running simultaneously. Both had detailed designs with respective cost estimates.
The one that was eventually chosen was what the Nano team thought would look more
attractive to the customer. "There were two concepts and we thought the second one added
more utility. We went for it since it was also more contemporary" says Tata Technologies'
Industrial Designer, Nikhil A. Jadhav. Some Tata group companies lent their resources for the
small car project and Tata Technologies was one of them.
The car had three concepts to begin with. "We picked the one that we thought looked the best,
and from that we made a full-scale model," says Jadhav. In mid-2005, one model was completed,
which then went through a stage of refinement. This was where the initial volume of the car was
defined. "It was here where we got into details like lamps and doors. From that point onwards,
we actually did another model, which was a second stage model. Eventually, a final refined
model was done by design house, I.D.E.A., which was brought here." adds Jadhav. The style for
the Nano was frozen in mid-2006-exactly a year after the first model was completed.
Understandably, this stage was important since it had to be in line with the cost targets.
In January 2008, Tata Motors India made breaking news when they presented the model of
Nano as the world's cheapest car at INR 100,000 only ($ 2500 at that time). For various reasons,
the car is yet to be launched in the market. Without getting into the political issues associated,
the Tata Nano car, in my opinion, is an unviable business model and therefore will continue to
run into bad weather, unless fundamental changes are made therein.
My opinion is based on just three issues - (a) cost-price structure of Tata Motors Nano car is
unbalanced and hence unsustainable, (b) Tata Nano car is against the grain of environmental
climate issues of the day and (c) Tata Motors have taken a laid back management style in
resolving critical social issues like displacement of farmland.
COST CUTTING FEATURES
The Nano's design implements many cost-reducing innovations.
The Nano's trunk is only accessible from inside the car, as the rear hatch does not open.
One windscreen wiper instead of the usual pair.
No power steering, unnecessary due to its light weight.
Three lug nuts on the wheels instead of the usual four.
Only one wing mirror.
No radio or CD player
No air conditioning
No airbags
623cc engine has only 2 cylinders
Rear wheel drive: manually actuated 4-speed trans axle that gives the car better fuel
efficiency
Wheel Bearing: Wheel bearing is strong enough to drive the car at 72kmph but would
quickly wear out at higher speeds.
Analogue speedometer, odometer and fuel gauge.
Single windscreen wiper
TARGET PRICING THE NANO
Tata Nano idea struck in the mind of Chairman when he saw a family of four (a man, his wife
and two kids) riding on a scooter on a rainy day. He felt that there was an unfulfilled need of
safe, affordable and an all weather alternative.
Announcing the vehicle as the least expensive production car in the world, Tata aimed for a
starting price of one lakh, or 100,000, rupees. This was approximately US$2000 at that time.
Rapidly rising material prices (up 13% to 23% over the car’s development time) caused the car
to be priced somewhat higher than 1 lakh (US$ 2,270). In late October 2010, Reuters reported
that prices of the car will be raised by an average of 9,000 rupees (US$202) from November, 1
because of rising material costs.
Price was fixed without compromising on Aesthetics, Value to Customer, Safety & Environment
requirements. Product design was choked because of the price target. Hence the setting the
price as target triggered a series of innovation which involved:
Suppliers were challenged with the stringent cost target given to them, but they accepted the
same and provided good quality low cost supplies to for the vehicle.
Target Cost approach – which involved breaking down the cost targets to sub-system and then
to component level.
PRODUCT FEATURES
Length:- 3.1 mtr
Wide:- 1.5 mtr
Height:- 1.6 mtr
Weight:- 600 Kg
Mileage:- 20 Kmpl
Fuel tank:- 15 Ltr
Engine:- 624 cc
Top speed:- 95-100 Kph
Ground clearance:-180 mm
Gear box:- 4-speed
Speed of Tata Nano: Top speed – 105kmph
DIMENSION
Length: 3.1m
Height: 1.6 m
Width: 1.5 m
ENGINE SPECIFICATIONS FOR TATA NANO
Rear-wheel drive
2-cylinder, 624 cc
33 bhp
Multi point fuel injection petrol engine.
Engine is rear mounted.
1st time a 2-cylinder gasoline engine was being used in a car with single balancer shaft.
Anti-vibe balancer shaft
So when Tata Motors needed someone to take charge of the company's most ambitious plan yet
to build the world's cheapest car ever Ravi Kant, who by then had become the company's
managing director, again turned to Wagh. Wagh remembers what he learned marketing the
little truck. "People want to move from two-wheelers to four-wheelers," he says. "Today they
can't afford it."
More and more can, but Indian car buyers today represent a tiny slice of a potentially giant
market India has just seven cars per 1,000 people. India's auto industry has grown an average
of12% for the past decade, but just 1.3 million passenger vehicles were sold in India in the fiscal
year ending March 2006. That means a billion Indians buy about the same number of cars in a
year as 300 million Americans buy in a month.
THE COST – THE TARGET
If four wheels cost as little as two wheels, that could change fast. About 7 million scooters and
motorcycles were sold in India last year, typically for prices between 30,000 rupees and
70,000rupees, about $675 to $1,600. Tata is targeting a price of 100,000 rupees one lakh, in
Indian terms of measurement or about $2,500 at current exchange rates, for its small car. That
sounds impossibly cheap in the West but remains three times higher than India's annual per
capita income. The average pay for factory workers at Tata Motors is just $5,500 a year. But the
market wanted a car and if they build a people’s car it should be a car and not something that
people would say,“ Ah! That’s just a scooter with four wheels or an auto-rickshaw with four
wheels & not really a Car.” Trying to build a car cheap enough for motorcycle buyers seems to
make sense now but seemed crazy several years ago when Rattan Tata, longtime chairman of
Tata Motors and scion of the nation's giant Tata Group conglomerate, first mentioned his dream
of building a one-lakh car in 2003. "They are still saying it can't be done," he says, insisting that
it can and will. "Everybody is talking of small cars as $5,000 or $7,000. After we get done with it,
there will hopefully be a new definition of low-cost."
Since the car had to be built within a cost of Rs. 1 Lac, no conventional design would work as the
costs shall be higher and so the entire car has to be redesigned.
Target Cost approach lead to: Material Cost Savings- Smaller size of car & components; Material
substitution- engineering plastic; Simplified component design and manufacturing process.
While car manufacturers usually buy 10 to 15% of the car parts from multiple suppliers in a
concurrent environment, Tata opened invitation to tender on the web to buy up to 40-50% of
the car parts.
THE COST REDUCTION PARADIGM
VALUE ENGINEERING ALTERNATIVES:
The target was very clearly defined that within the given cost structure of 1 Lac all the
components have to be allocated a maximum price and the same had to be achieved using the
available alternatives. The Guiding factor was that the tax structure, on materials and
manufacturing, must support the final cost of Rs. 1 Lac. The Decisions were:
The initial response to the Nano has been overwhelming and the tiny, Noddy-land car is
expected to help the company cross several milestones. With revenues at Rs 1,29,994 crore for
the financial year 2006-7, and group companies enjoying a market capitalization of Rs 2,51,487
crore as on January 10, 2008, the Tata Group is on a strong footing, contributing more than 3
percent to India's GDP. Nano, being the world's cheapest car, has made international players sit
up in amazement and the company has received proposals from some African, Latin American
and Southeast Asian countries to manufacture the car there.
PRODUCT DEVELOPMENT
And finally the product was developed with the following features.
While the bit about design and styling took a while, the decision with respect to having a rear
engine was less complicated. "We had decided on a rear engine four years ago. This was with
the objective of getting the best, optimal layout," states the Jai Bolar, Senior Manager
(Development), ERC. If there was one thing from which the focus could not be taken away, it
was obviously cost. That was often easier said than done, since the rising input costs were
beyond the company's control. "Rising input costs made our engineering targets difficult. For
example, if steel prices went up, we had no choice but to reduce the amount of steel in the car,"
says Wagh. Again, it was important to look beyond costs as well. "The price of the car is what the
customer pays in the beginning. Later on, what matters is the performance of the car," he adds.
Ideas for the Nano came from unexpected quarters and they were looked at closely before a
decision was taken. For instance, in addition to the vendors, a small group of mechanics was
part of the development phase. This was really a part of the serviceability and accessibility
workshop. Wagh recalls that one of the suggestions was to have an additional opening on the
rear floor which would provide access to the intake manifold and starter. "We were trying to
avoid this for cost reasons but the mechanics were vehement," he says.
The importance of balancing design changes with their respective cost implications cannot be
overstated. Every design, therefore, had to cater to three key requirements-cost, regulatory
requirements and acceptable performance standards. As Wagh puts it, "We did not want to
make something that was an embarrassment of a car." Clearly, while the cost was hugely critical,
the company was unwilling to make any kind of compromise on other areas. Fuel economy,
according to Narendra Kumar Jain, Deputy General Manager (Engines), ERC, is a major driver
for selling a vehicle in India. "It was important, for instance, to ensure that the car could be
manoeuvred in the city. If your car requires less parking, then the material required is also less,"
he adds.
Of course, there was the advantage of having learnt from the Indica and the Ace. Wagh, whose
father was on the Indica R&D team, was very closely involved with the design of the Ace as well.
"Clearly, the Nano was a tougher cost target. In a commercial vehicle, endurance is of prime
importance. It is also important in the case of a car, but sometimes other aspects like touch and
feel are more critical," he explains. Possibly, the biggest plus point through the launch of the
Indica and the Ace is that the development process at Tata Motors has matured to a great extent.
COSTS, OUTSOURCING AND BEYOND
According to Wagh, every component in the Nano has been studied from a functionality, cost
and performance requirement. There was no other way to reduce costs. From an outsourcing
perspective, the company put in place an Early Vendor Integration Programme. "We had a lot of
design inputs from vendors that either facilitated manufacturing or brought the cost down. This
could be for lamps or seats, for example," says Balasubramoniam. Elaborating on the
outsourcing for the lamp, he explains that the surface was provided. "It was within that surface
where the lighting mechanism had to be made operational" explains Balasubramoniam.
The Nano is completely indigenised, save for the fact that it will be using Korean and Japanese
steel from Posco and JFE to begin with, as Tata Steel's expansion at Jamshedpur is not yet
complete. Importantly, over 85 per cent of the vehicle will come from outside vendors. Tier-I
ancillary manufacturers, based in and around the small car plant at Singur will manufacture
complete sub-assemblies. The logic for this, says Wagh, is to make manufacturing as simple as
possible. Balasubramoniam, meanwhile, has thus been flying all over the country, not only to the
three established 'auto' manufacturing belts in India - the National Capital Region (NCR), Pune,
Aurangabad, Nashik and Chennai - but also to the upcoming small car plant in Singur to plan the
layout of the vendor park. This is with the objective of ensuring that parts between vendors and
the assembly line move smoothly and just in time.
Not surprisingly, the vendors have had it anything but easy as far as the small car project is
concerned. There are those who thought that the pressures on costing were just not working to
their advantage. "We felt that it was not feasible for us to compete for the basic model of the
Nano because the costing was too tight," says Sanjay Labroo, Managing Director, Asahi India
Glass, but adds that he did plan to bid for the 'Deluxe model'.
Those who are on the project think it is worth the effort. "This car is not over-engineered like,
say, German cars are, this is a great example of frugal cost-effective and relevant engineering,"
says Surinder Kapur, Managing Director, Sona Group, which has made the steering column and
the transmission. Lumax Industries too was heavily involved in the project. The company made
and designed the head and tail light fixtures on the car. "The opportunity to work on this car
also gave our engineers a chance to showcase their skills, because most other car products are
designed abroad and we just have to manufacture components to a specific blueprint. In this
project we designed light fixtures that meet all regulatory needs, fit the car and are low-cost",
says Deepak Jain, Executive Chairman, Lumax Industries. The company got involved in the
project at a very early stage and Jain thinks that was one major reason by which costs were
reduced.
Keeping costs down was a major problem for vendors, and they found innovative ways around
it. "A long-life bulb that might last 10 years adds a lot to the cost, so we fit a standard-life bulb
that met regulatory and warranty issues but kept costs low," explains Jain. "When we figured
out that the car would be rear-wheel drive, we knew that the steering column could be
engineered differently since the front wheels would not hold the weight of the engine. So we
kept the steering column hollow," says Kapur.
Tata Motors, for its part, looked at various ways to cut costs across the spectrum. "For instance,
a normal wheel mounting has four pins while we have three. We have also reduced the
thickness of the bumpers," explains Wagh. That is, of course, apart from the fact that the car has
only one wiper instead of the more conventional two. Electronic sourcing has been another
effort to cut costs. Wagh goes back to a time when Tata Motors was recovering from huge losses
- that was in 2001 - when the company took a lot of initiatives to cut costs. "One of the ways we
decided to do it was through e-sourcing. It was used extensively for the Ace and now for the
Nano. It provides good benefits as long as product specifications are firm," he adds.
By Wagh's estimate, there has been a saving of around 10 per cent as far as the Indica and the
Ace are concerned. The actual numbers for the Nano are still being worked out. As things stand,
the standard version of the car - what is being referred to, as the Rs 1 lakh car in that sense - will
not have an air-conditioner or power windows or a central locking system. That apart, it will not
have body-coloured bumpers or fabric-trimmed seats. All these features are expected to be a
part of the deluxe model.
According to Wagh, in any automotive development program, the cost reduction continues not
till just the time the car is launched but much beyond that. "Initially, we were looking at cost
prevention, which involved selecting a design concept with the least cost. Today, it is a clear
cost-reduction effort," he says.
Land lease at throw-away prices (Rs 1,260/- only per acre per month)
A soft loan of Rs 2 billion for 20 years at interest rate of 1% per annum
Concessional tariff of electricity at Rs 3 per kwh
VAT waiver for some Rs 10 billion or so
Subsidized rates of water, stamp duties and other infrastructural facilities at nil or very
low costs.
A recent press report says that it has been claimed that the amount of subsidy works out to Rs
60,000 per car, which is as high as 60% of its retail selling price.
In fact the cost equation is so thinly balanced, even after grant of the above subsidies, that Tata
Motors management rejected a proposal to shift the vendor site location from the plant site to
just across the road on the ground that the additional costs will make the project unviable.
It has never been wise to depend for business viability solely on government grants and
subsidies and short term tax incentives. Nano however is trying to go against this basic business
philosophy.
SAFETY ISSUES
As there has been concern generally on the issue of safety, the small car team outlines the fact
that the Nano caters to safety norms at two levels. "The Nano meets all regulations in the Indian
market. The package protected car also meets all future regulations in Europe as well, which
includes offset frontal and side impact," says Wagh. Environment has been another
controversial area, though the company points out that all norms have been met. "Currently, the
car meets Bharat III norms, which are applicable in 11 cities while it meets the Bharat Stage II
norms in the rest of the country. We will meet the Bharat Stage IV and Euro IV requirements as
well," says R. G. Rajhans, Project Manager (Body Systems), Tata Technologies.
For now, the focus is on getting the car on the road, which Wagh thinks should be possible
during the second half of 2008-09 financial year, that is after September. It is expected that the
plant in Singur will produce around 1,000 cars per day. There are a couple of other things too
that are being looked at.
"There are alternate fuel technologies under development such as CNG and LPG", he says and he
even hints that a future model "could have a diesel engine". If that is not enough, Wagh is also
working on technologies that Ratan Tata mentioned in an interview to this publication that the
car "in the future might well have continuously variable or automatic transmission." Wagh adds
that the roadmap will be to have a second generation of the vehicle in the next 5-7 years.
“A promise is a promise,” said Rattan Tata, Chairman, Tata Motors, on 10th January, 2008,when
the Nano was first displayed at the Auto Show in Delhi. The Nano project didn’t grabthe
attention of only Indians; the entire world had their eyes glued to the world’s cheapest car.
A truly People’s Car, this time is from India. Though the dealer price is Rs. 1 lakh, the price on
road, when it will be launched, will reach around Rs. 1,25,00 but it will be still more affordable
and will be more eco-friendly than most other cars giving a mileage of around23km/liters. The
price of the car is such that a lot of rich and HNIs, if interested, can buy the car just by a single
swipe of their credit cards.
Providing a car worth rupees one lakh car was the dream of the chairman of Tata motors Mr.
Rattan Tata. And with high qualified IT skills people he has shown the Indian talents to the
whole world.
• Safety
• Emissions
• Congestions
QUESTION OF SAFETY
The Nano has an all sheet-metal body made from Japanese and Korean steel, with safety
features such as crumple zones, intrusion-resistant doors, seat-belts, strong seats and
anchorages, and the rear tailgate glass bonded to the body. Tires are tubeless.
MASS MOTORIZATION
As the Nano was conceived and designed around introducing the automobile to a sector of the
population who are currently using eco-friendly bicycles and motorcycles, environmentalists
are concerned that its extraordinarily low price might lead to mass motorization in countries
like India and therefore possibly aggravate pollution as well as increase the demand for oil. The
ecology focused German newspaper die tageszeitung feels that such concerns are
"inappropriate" as the Tata Nano has lower emissions compared to the average Volkswagen,
and that developing countries shouldn't be denied the right to motorized mobility when
industrialized countries should be looking to reduce their emissions and usage of cars. Die
Weltre ports that the car conforms to environmental protection, and will have the lowest
emissions in India.
In crowded metropolitan cities like Mumbai, Ratan Tata has conceived a scheme to only offer
the Nano to those individuals who do not have an automobile already. The Nano will also
replace many overloaded and worn-out two-stroke polluting vehicles, both two and three-
wheeled. According to Anumita Roychowdhury, associate director of the Centre for Science and
Environment in New Delhi, "the low-cost cars will be disastrous" in the current policy and
regulatory framework.
The Nano is alleged to have severely affected the used car market in India, as many Indians opt
to wait for the Nano's release rather than buying used cars, such as the Maruti 800 (a rebadged
Suzuki Alto), which is considered as the Nano's nearest competitor. Sales of new Maruti 800s
have dropped by 20%, and used ones by 30% following the unveiling of the Nano. As one
automotive journalist summarizes; ―People are asking themselves—and us—why they should
pay, say, 250,000 Rupees for a Maruti Alto, when they can wait and get a brand new Nano for
less in a few months‘ time, a car that is actually bigger.
CASES OF FIRE
There have been 7 cases where the Nano caught fire, with the first three attributed to an
electrical fault in the steering column. Tata Motors has since replaced the OEM supplying the
fire retardant material as well as the steering column assembly. In March 2010, a new case of a
Tata Nano catching fire was reported, in which the car was being delivered from the dealership
to the owner's house. This case is currently under investigation.
COMPETITORS
Rival car makers including Bajaj Auto, Fiat, General Motors, Ford Motor, Hyundai and Toyota
Motor have all expressed interest in building small cars in India that are affordable to more
middle-class consumers in emerging markets. The bulk of demand there is for small cars
because people are much more sensitive to fuel prices. Honda and Toyota are leading the way
on so called cleaner gasoline-electric hybrids, and some environmentalists argue getting prices
down on these technologies is where efforts should be concentrated. Inexpensive and eco-
friendly electric-cars like Tara Tiny (which has an engine producing 4 hp compared to Nano's 33
hp), Oreva Super (both reportedly even cheaper than Tata Nano) and REVA pose even more
significant danger to Nano. There are also rumors of Maruti Suzuki introducing a lower priced
version of Alto to counter Tata Nano.
APPENDIX
TARGET COSTING PRESSURES ON NEW PRODUCTS
CONCLUSION
In the conclusion we can say that Nano has truly lived up to its expectations and shattered the
following myths
Rear- engine cars are unsafe- Ferrari, Porsche, VW and Lamborghini do it why can‘t
Tata?
The Nano will pollute the planet- 623cc engine produces less CO2 than average Eu small
car.
The Nano will have no storage space-Sufficient storage space, under the bonnet and
over the rear parcel tray, rear seats fold to dramatically increase storage space.
Tata has defied the conventional odds and sceptics in the industry through the innovation of
the world's cheapest car. Tata Nano is a marvel of a product yet audaciously economical and
mechanically simple. It is a breakthrough in frugal engineering where innovation is driven by
cost savings and sheer ingenuity. Tata managed to reorient the basic tenets of efficiency and
practicality to meet the cost target.
Tata Nano achieves what most people deemed impossible through originality and ingenuity. It
is a no frills car that serves the needs of the general public and India's deplorable road
conditions and notorious traffic. In this sense, the production and launch of Tata Nano can be
called a revolution - not only to the consumers but also to industry players. Other players are
contemplating on their own versions of low cost alternatives as a result of the overwhelming
response from the Indian public and all over the world. Moreover, their skepticism is met with
a surprise upon seeing the model in action.
The next step forward for Tata is to address the possible concerns with regard to ownership
in order for customers to grasp the value proposition that Tata is trying to propagate. This
includes dispelling all perceptions of shortcomings normally associated with a low-cost car
through vigorous testing on real roads using real users. The basic rule of customer service still
applies. Tata Nano should meet the consumer's expectations by providing a reliable and
modestly safe vehicle to drive. The car, with its immense recognition gained even before its
launch, is expected to fulfill the dreams of common people.
SPECIFICATIONS
Engine: 2 cylinder petrol with Bosch multi-point fuel
injection (single injector) all aluminium33 horsepower
(25 kW) 624 cc (38 cu in)
Value Motronic engine management platform from Bosch
2 valves per cylinder overhead camshaft
Compression ratio: 9.5:1
bore × stroke: 73.5 mm (2.9 in) × 73.5 mm (2.9 in)
Power: 35 PS (26 kW; 35 hp) @ 5250 rpm
Torque: 48 N·m (35 ft·lbf) @ 3000 +/-500 rpm
Layout and Rear wheel drive
Transmission
4-speed manual transmission
Steering Mechanical rack and pinion w/o servo
Turning radius: 4 metres
Performance Acceleration: 0-60 km/h (37 mph): 8 seconds
Supplier [37] Part/system [37]
Maximum speed: 105 km/h (65 mph)
Texspin Clutch Bearings
Fuel efficiency (overall): 23.6 kilometres per litre
Oxygen
(4.24 litressensor,
per 100Gasoline injection
kilometres (66.6system
mpg-imp;(diesel will-USfollow),
55.5 mpg ))
Bosch
starter, alternator, brake system
Body and Seat belt: 4
Continental
dimensionsAG Gasoline fuel supply system, fuel level sensor
Trunk capacity: 150 L (5.3 cu ft)
Caparo Inner structural panels
Suspension, Front brake: 180 mm drum
Tires
HSI & Brakes
AUTO Static sealing
Rear brake: 180systems
mm drum(Weather Strips)
Delphi Instrument
Front cluster
track: 1,325 mm (52.2 in)
Denso Windshield
Rear wiper
track: 1,315 mmsystem (single motor and arm)
(51.8 in)
FAG Kugelfischer Ground
Rear-wheel bearing
clearance: 180 mm (7.1 in)
Mahle Camshafts, spin-on oil filters, fuel filters and air cleaners
Saint-Gobain Glass
Ceekay
Clutch sets
Daikin/Valeo
ZF Friedrichshafen
Chassis components, including tie rods
AG
COMPARISON
TATA NANO PRICES ON THE TATA MOTORS’S WEBSITE
TATA NANO OFFICIAL FINANCERS AT LAUNCH
THE APPLICATION FORM
THE ACCESSORIES PRICE LIST
GLOSSARY
Abnormal cost: It is the cost which is not normally incurred at a given level of output in the
conditions in which that level of output is normally attained.
Absolute cost: It is the total cost of any product or process. For e.g.: in a cost sheet, both
absolute cost and cost per unit are depicted.
Absorption costing: It is the technique of assigning all costs i.e. both fixed and variable, to the
respective product/service.
Actual Cost: An amount determined on the basis of cost incurred including standard cost
properly adjusted for applicable variance.
Administrative cost: It is the indirect cost pertaining to the administrative function which
involves formulation of policies, directing the organisation and controlling the operations of an
undertaking.
Common Cost: The cost of resources employed jointly in the production of two or more outputs
and the cost cannot be directly traced to any one of those outputs.
Controllable cost: The cost, which can be influenced by the action of a specified person in an
organisation, is known as controllable cost.
Conversion cost: It is the cost incurred for converting the raw material into finished product. It
comprises of direct labour cost, direct expenses and factory overheads.
Cost: Cost represents the amount of expenditure (actual or notional) incurred on or attributable
to a given thing. It represents the resources that have been or must be sacrificed to attain a
particular objective.
Cost unit: A cost unit is defined as a unit of quantity of product, service or time (or a
combination of these) in relation to which costs may be ascertained or expressed. Cost units are
usually units of physical measurement like number, weight, time, area, length, volume etc.
Direct cost : Direct cost is that cost which can be identified with a cost centre or a cost unit. For
e.g. cost of direct materials, cost of direct labour.
Direct costing: Under direct costing, a unit cost is assigned only the direct cost, i.e., all the direct
costs are charged to the relevant operations, products or processes.
Discretionary cost: It is an "escapable" or "avoidable" cost. In other words, it is that cost which
is not essential for the accomplishment of a particular objective.
Economic order quantity: The level of inventory order that minimises total cost associated
with inventory management.
Estimated cost: It is an approximate assessment of what the cost will be. It is based on past
data adjusted to anticipated future changes.
Expired cost: Costs which cannot contribute to the production of future revenues.
Imputed / Notional cost: Imputed cost is that cost which does not involve any cash outlay.
Though it is a hypothetical cost, it is relevant for decision making. Interest on capital, the
payment for which is not actually made, is an example of imputed cost.
Job Costing: A job card is prepared for each job to accumulate costs.The cost of the jobs is
determined by adding all the costs against the job when it is completed. This method of costing
is used in printing press, foundries, motor- workshops, advertising etc.
Joint cost: It is the cost of the process which results in more than one main product.
Labour efficiency variance: The number of hours actually worked minus the standard hours
allowed for the production achieved multiplied by the standard rate to establish a value for
efficiency (favorable) or inefficiency (unfavorable) of the work force.
Labor yield variance: It shows the monetary impact of using more or fewer total hours than
the standard allowed = (standard mix * actual hours * standard rate) -(standard mix * standard
hours * standard rate);
Managed / Policy cost: It is that cost which is incurred as a matter of policy eg: R & D cost. It
arises from periodic (usually annual) decisions regarding the maximum outlay to be incurred
and. This cost is not tied to a cause and effect relationship between input and output.
Marginal cost: It is the amount at any given volume of output by which aggregate cost changes
if the volume of output changes increases/decreases) by one unit.
Normal cost: It is the cost which is normally incurred at a given level of output, under the
conditions in which that level of output is normally attained
Operating Costing: The method of costing used in service rendering undertakings is known as
operating costing.
Period cost: It is the cost which is not assigned to the product but is charged as an expense
against the revenue of the period in which it is incurred.
Pre-production cost: It is that part of the development cost which is incurred for the purpose
of a trial run, before the commencement of formal production.
Prime cost: Prime cost is the aggregate of direct material cost, direct labour cost and direct
expenses.
Prime cost percentage rate: Estimated overhead divided by the estimated prime cost.The
result is expressed as a percentage.
Process costing: A costing method applied where a product passes through many separate
stages of manufacture.There is a continuous flow of identical products
Shut down cost: The fixed cost which cannot be avoided during the temporary closure of a
plant is known as shut down cost.
Single Output/Unit Costing: This method of costing is used where a single product is
produced.This method of costing is normally used in marble quarrying, mining, brick-kilns,
breweries, etc.
Standard cost: It is a pre-determined cost which is arrived at, assuming a particular level of
efficiency in utilisation of material, labour and other indirect services. It is the planned cost of a
product and is expected to be achieved under a particular production process under normal
conditions.
Standard Costing: CIMA defines standard costing as " a control technique which compares
standard costs and revenues with actual results to obtain variances which are used to stimulate
improved performance."
Uncontrollable cost: The cost which cannot be influenced by the action of the person heading
the responsibility centre is called uncontrollable cost. Fore.g. all the allocated costs and the fixed
costs.
Uniform Costing: It is defined as " the use by several undertakings of the same costing system,
i.e., the same basic costing methods, principles and techniques."
Variable cost: The cost which varies with the level of production is called variable cost i.e., it
increases on increase in production volume and vice-versa. For e.g. cost of materials, cost of
labour.
REFRENCES
www.accountingformanagement.com
maaw.info/ArticleSummaries/ArtSumSakurai89.htm
en.wikipedia.org/wiki/Target_costing
www.npd-solutions.com/target.html
http://www.costleadershipstrategy.com/product-costing/tata-nano-
worlds-cheapest-car-2500/
http://streamlinesupplychain.wordpress.com/2008/02/02/tata-nano-
and-the-supply-chain/
http://tatanano.inservices.tatamotors.com/tatamotors/index.php?opti
on=com_content&task=view&id=215&Itemid=207