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EL06 Vendor Management Process OFIs

Sourcing Function - Strategic Challenges, Success Factors & Approaches

Strategic Challenges Critical Success Factors Approaches / Innovations - Improve supplier quality by greater supplier collaboration & training - Greater supplier monitoring & mentorship - Driving Integrated cost reduction programme aggressively with suppliers involvement - Encourage supplier to have flexible manufacturing set up to cater variety of requirements Steel - Identifying commodity suppliers / geographies based on natural advantages, factoring the cost of production. - Use of judicious mix of ST & LT contracts to balance volatility in commodity prices - Contractual Provision with steel suppliers for TML tierI consumption Other Commodities ( Aluminum, copper, Polypropylene, Precious material) - Covered under escalation and de-escalation clause - Hedging mechanism being developed - Tyre - Monitoring benchmarked rubber indices (both global/local) for both rubber and crude commodity which has large impact on tyre prices. It is backed back price revision system -Sharing long term plans with suppliers - Developing strategies for critical aggregates/commodities - Judicious mix of local as global sourcing - Developing alternative sources for spare part supply - Effectively using Vendor Council platform to achieve long term mutually benefitting relationship

Meeting quality, Cost & customized expectations of customer

Provide product with low life cycle cost

Volatility in commodity prices

Ability to contain costs

Supply side constraints

Demand forecasting, long term relationship

Strategic Challenges

Critical Success Factors Forex / Treasury Management Strategy to nullify exchange rate adverse impact

Approaches / Innovations - Developing multisource strategy with local & foreign suppliers from different geographies to nullify the sensitivity to exchange rate fluctuations. - Developing hedging strategy (Done by corporate finance) - Balancing Import & export whenever possible to nullify gain & loss (monitored at company level)

Exchange rate fluctuations

Global competitors with WC products entering India

Developing competitive products at affordable prices

Improving Present product range by - Improving quality & reliability - Continuous cost reduction on existing products through collaborative working with suppliers New products - Reducing time to market by involving supplier early at concept stage during product development. Also leveraging suppliers domain expertise.

Comply with regulatory & legal emission requirements

Introduction of new products & technologies

- Scan the environment for future regulatory requirements. Identify potential supplier partners & establish strong relationship with suppliers who can support future road map - Sensitize the current supplier base proactively - Support for revamping running products

Suppliers bargaining power

TML approach is to develop a mutually benefitting win-win situation for vendors as well as TML. This is achieved by leveraging mutual strengths. CVBUs market leadership position (Market share more than 60%) results into high purchasing volume and CVBU benefits due to economy of scale.

Strategy developed to address suppliers bargaining power

CVBU, around 55% value wise, buys from single suppliers. These are strategic partners such as ACGL, HVA, HVTL & Cummins. No sole supplier (Sole supplier If resources (time and money) are made available, alternate supplier can be developed.) Dies and Toolings TML ownership Development cost paid by TML, case to case terms & conditions may vary. Emphasis on localization or local partners Alternate global source development Creation of sufficient listening posts so as to understand supplier pain points and address them amicably before they can lead to bargain stage.

Strategic direction:
Vendor management functions will primarily focus on following aspects in the future Greater supplier involvement in new product development ( EVI) & Joint technology development Closely working with Strategic suppliers to improve QCD performance (QA audits, Vendor support centre, Vendor council, Demand fullfilment initiative) Collaborative knowledge sharing amongst vendors as well as with Tata Motors Revisiting policies on engineering change management, warranty system, VA:VE benefit Working on supply chain greening (environmental management), safety at suppliers workplaces Buying consolidation Balanced approach to local sourcing as well as global sourcing Roll over of Vendor park concept (in line with Uttaranchal and Sanand experience) Integrating Affirmative Action in Vendor Management Processes 5

Key themes for 2011-12 action plan

1. OFI

Vender Quality management in early stage of development, It may benefit from entering into formal long-term agreements with longkey vendors on selective basis to ensure that the key outcomes of its action plans such as price, delivery, quality, technical training and assistance, upgrades, improvements etc from such vendors are sustained on a long-term basis. long2. Message

Need to re-visit the Vendor Performance Management system focussed on achieving world class quality levels Driving Quality focus in Supply chain initiatives Alignment of Vendor Support Centre initiative with Critical Quality Suppliers

Key themes for 2011-12 action plan

3. Actions planned Standardize & improve the Vendor Quality Rating system inline with Car plant Need to debate, to extend the scope of above system to capture performance of vendors for New Projects & for After Market support. Also, model to be initiated to capture safety performance of vendors. Quality Improvement targets are a key part of Materials function MPAs Purchase Agreement & Debit Policy being re-defined to achieve stringent quality levels & to incorporate international project requirements Demand Fullfilment initiative to be linked to Quality improvement commitment , apart from securing long term supplies.

Key themes for 2011-12 action plan

1. OFI

While, Vendor satisfaction is measured through external agency, it is typically administered to only one person within the vendor. Administering the questionnaire to multiple people vendor. involved in the relationship will provide a more comprehensive picture of VSAT
2. Message

The Existing vendor Satisfaction Model adopted by the surveying agency being refined to capture more granular feedback in terms of locational, components category & Senior/operational level feedback Vendor Council Relationship committee through various initiatives like SAM ,has been laying special emphasis on understanding policy level & long term issues, which needs improvement. Time bound resolution for issues raised by Concerns resolution committee being initiated.

OFI that needs discussion

While the supplier results presented (Figs 7.5-10, 7.5-11, 7.5-12, 7.5-13 and 7.5-14) show generally favorable results, it is clear from conversations with

selected suppliers that the company is not considered to have high quality standards in comparison with their other customers. The
results tracked by the company tend to measure conformance to standard rather than measures of absolute quality, with the expectation that defects will be caught on the production line. Without predictive and preventive measures the applicant leaves itself vulnerable to business interruptions and to the potential of passing on not-easily-detectable defects to customers.

Future outlook

Vendor management future outlook is very challenging considering the varied product portfolio characterized by high volumes, high reliability, cost competitive products etc. Competencies developing (Q,D), innovation (C), Hand holding and encouraging Tier I supplier to take ownership of Tier II vendors will be the Key thrust areas.


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