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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 relentless focus on costs and eliminating waste and redundancy.
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. Do consumers want 2 doors or 4 doors? What should
be the engine capacity? Should the windshield wipers have 2 blades or 1? What
instruments should be provided?
Once the features and functions are finalized target costs are assigned to each
and every component/system – transmission system, instruments, engine, body,
interiors, 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 applied to supply chains!
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.