TATA NANO

While travelling across the roads of Mumbai, Ratan Tata saw a family of four
travelling on a scooter. He then decided to make a car which would be affordable to
the middle class of our country. Thus TATA Nano was concepted.

R&D
Everyone appreciates that labour costs are lower in India than in Europe, but
material costs are similar. How can a car cost less than we are used to paying for
good quality motor scooters here in Europe?
Tata Motors MD Ravi Kant hand-picked Girish Wagh to head the Nano project.
Because there were no guidelines, the team used the Maruti-800 for comparison.
"The idea was that we had to achieve at least this much and more," says Wagh.
The Nano incorporates three innovations, which together make it huge.

First, the Nano uses a modular design that enables a knowledgeable

mechanic to assemble the car in a suitable workshop. Thus, Tata can
outsource assembly to independent workshops that can then assemble the
car on buyers orders. This innovation not only removes costly labor from the
manufacturers side but also allows for distributed entrepreneurship on the
dealers side.

Second, the low cost of the Nano comes from a combination of its exclusion
of frills and luxuries and its inclusion of numerous lighter components, from
simple door handles and bulbs to the transmission and engine parts. The
lighter vehicle enables a more energy efficient engine that gets 67 miles per
gallon.

Third, the Nanos novel design incorporates a much smaller footprintat 122
inches long, its one of the shortest four-passenger cars on the marketyet it
allows for ample interior space.

In January 2010, less than a year after the launch, Autocar India presented Ratan
Tata with its Car of the Year award. The editor of the magazine said - "The beauty
of this car is not its cost, but how much it delivers for so little," going on to praise its
"innovative engineering" and "creative cost-saving". The commercial significance of
these awards is that, at least in the opinion of the judges, Tata had developed a
genuinely innovative and effective product, despite its low price.
(Phase 1, 2 . During the final Testing of the product found a Defect 1,2 what the
probability of the phase given the Defect type Apply Bayes Theorem )
The research team was divided into 2 teams. Research team A and research team B.
Team A designed 65% of the final product whereas Team B designed 35% of the
final product.

After completing the entire design of the car, the Research team wanted to test the
whole product once.
Let A1 denote the event that the design under testing is from Team A and Let A2
denote the event that the design under testing is from Team B. So during testing if
we select a particular design at random then the prior probabilities are P (A1) =
0.65 and P (A2) = 0.35.

Research Team A
Research Team B

Percentage Test Pass

90
92

Percentage Test Fail

10
8

Let M denote the event that the result of the test conducted is a Pass and Let N
denote the event that the result of the test conducted is a Failure.
P (A1) = 0.65 and P (A2) = 0.35
The following conditional probability values are found from the Table-1:
P (M|A1) = 0.90
P (M|A2) = 0.92
P (N|A1) = 0.10
P (N|A2) = 0.08
P (A1M) = P (A1) P (M|A1) = 0.65 * 0.9 =
P (A1N) = P (A1) P (N|A1) =0.65 * 0.10=
P (A2M) = P (A2) P (M|A2) =0.35 * 0.92=
P (A2N) = P (A2) P (N|A2) =0.35 * 0.08=

SUPPLIERS
Driving down the price of the Tata Nano couldn't have been done without the
collective effort of the component suppliers. Some of the biggest and the best in the
business were roped in, with scissors and ingenuity to bring out solutions within a
specified cost structure.
While Tata started work with 600 suppliers and a total of 1,800 supplier-part
combinations, these were eventually narrowed down to 100 suppliers for the

platform. (No of defects per supplier can be given and here we can apply BAYES
THEOREM, conditional probability) OR
(Population of Batteries from 5 suppliers N=5000, Mue average life of the battery,
n = 100 batteries per sample then take multiple samples for interval
estimation)This covers Normal distribution and Interval Estimation)
The Manager wanted to check for battery guarantee period for the batteries that are
provided by the supplier.
Cost saving was also achieved by using thinner materials wherever the design
allowed, so the bumpers are only 2.5mm thick, against 3mm on the Tata Indica
super mini. (NORMAL DISTRIBUTION CAN BE APPLIED here)
Tata Johnson Controls developed the seats for the small car. The front seats were
based on a single brace structure instead of individual rails, a frame and the right
amount of foam to ensure overall seat comfort wasn't lost. The basic variant in fact
doesn't even offer seat back adjustments for the passenger, thus saving on crucial
rupees.
Bosch was asked to develop the engine management system for the car. A relatively
complicated and expensive component in general, Bosch imported the control unit,
sensors and actuators for the car. For the Nano, it created a blink mode that allows
for the car's health to be detected even without a diagnostic tools.
For a small car, a powerful air-conditioner that doesn't sap engine power was
crucial. Behr, the German air-conditioning expert was roped in. The HVAC modules,
manual control heads and condensors were developed by Behr, in association with
Anand Automotive systems. A 60cc rotary compressor from Panasonic has been
used -- about 10cc larger than the one on the Maruti 800.
MRF became the exclusive partner in development of the tyres for the first lot of
cars. Using tubeless tyres of different widths for the front and the rear, MRF's brief
was three-pronged -- low rolling resistance for better efficiency, good ride and tyre
life characteristics and a tyre setup that dials out any traces of oversteer. (Different
varieties of tyres can be put with varying widths here we can apply Binomial
distribution tyres of type 1 and type2. What is the Probability of more than 800
tyres pass through the test out of 1000 tyres of each type given the probability of
passing)
A whole host of other suppliers were also involved in the project who, despite
supplying smaller number of components played their part. At the end, despite steel
price fluctuations, a tanking economy and component suppliers suffering from

immense revenue pressures, the combined operations have helped Tata Motors
achieve the magical Rs 1 lakh tag.

MANUFACTURING
Tata's original plan was to manufacture the Nano in a new factory based in Singur,
West Bengal. This had required investment of almost $300 million. However,
farmers supported by local politicians protested vigorously against the facility, on
the grounds that their land had been compulsorily purchased by the state. The
company decided to transfer production to a new factory in Sanand, Gujurat. This
required an outlay of almost $400 million, as well as the writing-off of much of the
Singur investment.
Sanand has a capacity of 250,000 cars per year, extendable to 500,000. But not
only did the conflict at Singur cause a seven month delay in the production
schedule, it also meant that initial production had to be carried out at a different
factory, in Pantnagar, northern India while the Sanand facility was being readied.
This only had a capacity of 50,000, hence the difficulty of satisfying initial demand
for the Nano. Roll-out of sales across the country was slow, and it took some two
years from the product launch for the Nano to be available throughout India.

NANO ON FIRE
Some modifications were needed after a small number of Nanos caught fire Tata
faced further problems when a small number of customers reported that their
Nanos had caught fire. There were approximately six such reports in 2010. The
reason for the fires was said to be "specific" to the cars involved, rather than a
fundamental design flaw. Tata responded to the spate of incidents by retrofitting
safety modifications, such as additional fuses in the electrical systems.
Batch
B1
B2

Units
Manufactured
150000
100000

Total
Checked
7500
5000

Units Defective Units

2625
1700

Defective
Percentage
3.5 %

In 2011, TATA Nano was manufactured in two batches B1 and B2 at Sanand. B1 had
150000 units and B2 had 100000 units. After the fire incidents in 2010, TATA had
introduced stringent quality and safety checks. An internal inquiry revealed the
probable cause of fire was defective electric fuses. Of the 7500 units checked from
B1, around 3.5 % of the units had defective fuses which could probably cause fire.
Before the production of B2 began, TATA Motors pledged to bring down the
percentage of defects which could be a possible fire hazard. 5000 units were
checked from B2. Were TATA Motors able to bring down the percentage of units with
defective fuses?? (HYPOTHESIS TESTING)

Suppliers: Normal and Interval Estimation , Binomial

Maufacturing: Poison / Exponential
RnD: Bayes theorem
Fire Incident: Hypothesis Testing

Pricing of Tata Nano

The single most important factor which determines the success of Tata Nano is
how much we would sell it for. After doing an extensive research, we have come
up with the factors that will affect the pricing of the car. The pricing largely
depends on these factors:
1 Raw materials
2 Plant operating Cost
3 Labour Wages
From the department of R&D, we got the cost of raw materials used for the
production of one unit of the car. It is approximately 35000. On similar lines, the
plant operating cost for producing one unit is obtained from maintenance
department which is approximately 25000. Wages given to labour and similar
expenses are obtained from the HR Dept. This is approximated to be 10000.
Adding this up, the total cost for producing one unit amounts to 70000. Also, we
take into consideration the dealers margin to be approx. 14% i.e., 10000.
Therefore net cost will be 80000.
The ex-showroom price, therefore, is fixed at 1, 00,000 so as to generate a profit
of 20,000.
For the expansion of production size, we need at least 100 crore influxes. This is
achievable when at least 1, 00,000 units are sold in a year (deducting misc. cost
like loan, dividends, etc.). Here we use the HYPOTHESIS METHOD to
determine whether the production size can be expanded or not. In this case,
H0 : Units sold 1,00,000
Ha : Units sold > 1,00,000
Now if units sold are more than 1, 00,000 the null hypothesis will be rejected and,
therefore, we can proceed with the expansion process.
Well use the first year sales data to test this hypothesis.

Finance
We have an exhaustive list showing the sales figures of the different variations of Tata Nano. We
have three variants of the Tata Nano which are
1
2
3

Basic model (A)

Semi-luxury model (B)
Luxury model (C)

The pricing of these variants are 1, 00,000, 1, 25,000 and 1, 50,000 lakhs respectively. Now
let us consider the units sold chart of all these variants.

Units sold chart

Q1
Q2
Q3
Q4
Total
sales
model
wise

Basic
model(A)

Semiluxury
model(B)

Luxury
model(C
)

16506
13900
17115
11157
58678

7123
6725
7389
6179
27416

4717
2477
6285
3877
17356

Total
unit sold
quarterl
y
28346
23102
30789
21213
1,03,450

From the above data we found that total annual sales of units is 1,03,450. Hence the null
hypothesis is rejected and, therefore, we can proceed with the expansion plan.

Based on a survey conducted by the market research team of Nano, we have compiled the
probability of a particular variant being sold. We have gone a step ahead and compiled even the
quarterly variations in probabilities of these models.

The probability chart:

0.16
0.13
0.17
0.11

Semiluxury
model
0.07
0.07
0.07
0.06

Luxur
y
model
0.05
0.02
0.06
0.04

Total
sales
quarterly
0.27
0.22
0.30
0.21

0.57

0.27

0.17

1.00

Basic
model
Q1
Q2
Q3
Q4
Total
sales
model
wise

We need to check for the profitability of these different variations as that is paramount for the
existence of the business. It is assumed that the plant has incurred operating costs to be a going
concern.
Revenue generated according to unit sold (TABLE 1) and price per model are given below

Sales Chart
Semiluxury Luxury
model
model (in
(in
(in
lakhs)
lakhs) lakhs)
16506 8903.75
7075.5
Basic
model

Q1

32485.25

Q2

13900 8406.25

3715.5

26021.75

Q3
Q4
Total
sales
model
wise

17115 9236.25
11157 7723.75

9427.5
5815.5

35778.75
24696.25

58678

26034

118982

34270

322.6209135
88.96368777
572.7582165
217.947738

Total
sales
quarterly
(in lakhs)
8901.178
5811.063
10648.54
5064.104

33282.81957 9082.129725 4367.772876

118982

Basic model
(in lakhs)
Q1
Q2
Q3
Q4
Total
sales
model
wise

Total
sales
quarterly
(in lakhs)

2633.620454
1867.665539
2831.543983
1203.273552

Semiluxury
model (in
lakhs)
613.0634244
546.4671943
659.7066336
461.3344732

Luxury
model (in
lakhs)