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A Presentation on
Prepared by:-
Mehul Rasadiya
Submitted to:-
K.K. Parekh Institute of Management Studies (Amreli)
Cost Leadership Strategy
Ms. Brinda Raycha
COST LEADERSHIP
Cost leadership is a concept developed by Michael Porter,
Used in business strategy.
It describes a way to establish the competitive advantage.
Cost leadership, in basic words, means the lowest cost of operation in the industry. The cost leadership is often driven by company efficiency, size, scale, scope and cumulative experience
A company could be the lowest cost producer, yet not offer the lowest-priced products or services.
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COST LEADERSHIP
An integrated set of actions taken to produce goods or services with features that are acceptable to customers at the lowest cost, relative to that of competitors with features that are acceptable to customers. Relatively standardized products Features acceptable to many customers Lowest competitive price
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COST LEADERSHIP
Cost saving actions required by this strategy: Building efficient scale facilities Tightly controlling production costs and overhead Minimizing costs of sales, R&D and service Building efficient manufacturing facilities Monitoring costs of activities provided by outsiders Simplifying production processes
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VALUE-CREATING ACTIVITIES FOR COST LEADERSHIP
Cost-effective MIS & Simplified planning Consistent policies & Effecting training Easy-to-use manufacturing technologies Finding low cost raw materials Monitor suppliers’ performances Economies of scale Efficient-scale facilities Effective delivery schedules Low-cost transportation Highly trained sales force Proper pricing
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COST LEADERSHIP STRATEGY: COMPETITORS
Threat of new entrants
Bargaining power of suppliers
Rivalry among
competing firms
Bargaining power of
buyers
Threat of substitute products
Rivalry with Existing Competitors
Due to cost leader’s advantageous position: Rivals hesitate to compete on basis of
price. Lack of price competition leads to
greater profits.
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COST LEADERSHIP STRATEGY: BUYERS
Threat of new entrants
Bargaining power of suppliers
Rivalry among
competing firms
Bargaining power of
buyers
Threat of substitute products
Bargaining Powerof Buyers
Driving prices far below competitors, causing them to exit, thus shifting power with buyers back to the firm.
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COST LEADERSHIP STRATEGY: SUPPLIERS
Threat of new entrants
Bargaining power of suppliers
Rivalry among
competing firms
Bargaining power of
buyers
Threat of substitute products
Bargaining Power of Suppliers Can mitigate suppliers’ power
by: Being able to absorb cost
increases due to low cost position.
Being able to make very large purchases, reducing chance of supplier using power.
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COST LEADERSHIP STRATEGY: NEW ENTRANTS
Threat of new entrants
Bargaining power of suppliers
Rivalryamong
competing firms
Bargaining power of
buyers
Threat of substitute products
The Threat of Potential Entrants Can frighten off new entrants
due to: Their need to enter on a large
scale in order to be cost competitive.
The time it takes to move down the learning curve.
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COST LEADERSHIP STRATEGY: SUBSTITUTES
Threat of new entrants
Bargaining power of suppliers
Rivalryamong
competing firms
Bargaining power of
buyers
Threat of substitute products
ProductSubstitutes
Cost leader is well positioned to: Make investments to be first to
create substitutes. Buy patents developed by
potential substitutes. Lower prices in order to
maintain value position.
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To develop TATA into a world class
Indian car brand for innovative
and superior value vehicles
VISION
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• To be the most admired multi-national
Indian
company producing vehicles that people
love to buy
• To create an organization that people
enjoy
working for doing business with and
investing in
Mission
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“I saw families ridding around on scooters with kids standing up and mother carrying a baby
and sitting Pillion and decided to do something about . It started as an quest for an
affordable transportation solutions.”
.
Idea Generation Of Nano
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TATA’s NANO
Why
Nano ?
A Promise is
A Promise – Ratan Tata
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TATA Implemented Cost Leadership Strategy
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Innovation has been the hallmark in the mission for the Nano. It has focused on creating cost effective solutions. A new brand of innovation that makes more out of less.
34 patents have been filed.
Inexpensive solutions availing the existing infrastructure of Tata motors.
Modular design: Components in kit forms that can be easily shipped, assembled and serviced even by local entrepreneurs.
Light weight welded steel platform. Minimum use of steel to reduce weight.
Adoption of rear engine, rear wheel drive.
Elimination of propeller shaft.
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LOGISTICS & SUPPLY CHAIN MANAGEMENT
Mother plant
Manufacture the complete car.
Centralization of purchase .
97% parts locally sourced.
Only 20 companies to supply 70% of components.
Volume commitments. 75% from single source.
Half the vendors will be located near the mother plant.
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JOINT VENTURE
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SWOT Analysis of TATA Nano
HELPFUL HARMFUL
S W
TO20
STRENGTHSSTRENGTHS
Price
MileageStyle
Brand Name
First Innovation21
TATA Nano’s
WEAKNESSESWEAKNESSES
Fiber Body
Low Suspension
Light Weight
Not Suitable for Hilly Areas
Low Space 22
TATA Nano’s
OPPORTUNITIESOPPORTUNITIES
Bikers can motivated
Auto Rickshaw & Second hand market
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TATA Nano’s
!
!THREATSTHREATS
Other Competitors
New Regulations
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TATA Nano’s
TATA produce a Cheapest car Because.. Mother plant Manufacture the complete car. Having best engine technology (FIAT)
Threat of new entrants
Bargaining power of suppliers
Rivalry among
competing firms
Bargaining power of
buyers
Threat of substitute products
Rivalry with Existing Competitors
So no one Competitors are there
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No one other competitors are there because TATA is only one company which are providing cheapest car , so low bargaining power of buyers
Threat of new entrants
Bargaining power of suppliers
Rivalry among
competing firms
Bargaining power of
buyers
Threat of substitute products
Bargaining Powerof Buyers
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Low Bargaining power of Suppliers because…..
97% parts locally sourced. Only 20 companies to supply
70% of components.
Threat of new entrants
Bargaining power of suppliers
Rivalry among
competing firms
Bargaining power of
buyers
Threat of substitute products
Bargaining Power
of Suppliers
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Less possibility of threat of potential EntrantsThreat of new
entrants
Bargaining power of suppliers
Rivalryamong
competing firms
Bargaining power of
buyers
Threat of substitute products
The Threat of Potential Entrants
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Bikes RickshawThreat of new
entrants
Bargaining power of suppliers
Rivalryamong
competing firms
Bargaining power of
buyers
Threat of substitute products
ProductSubstitutes
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ON A THIN MARGIN
Tata’s will barely make any profit in the initial stage. A few experts also predict that they will loose money, as a one lakh car is not feasible.
A low profit model is not a major concern. The concern is to meet the sales target and economy of scale.
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Tata Motors launched the Ace truck in May 2005 for just above Rs 200,000.
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Also launched the cheapest water filter from Tata Chemicals. less than Rs 1000.
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TATA Motors announces that the small car
Will be produced in Singur in West Bengal.
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WHY TATA NANO PULLED OUT OF SINGUR?
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Political Battlefield
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LAND CONTROVERSY
Acquired Land
Compensation
Admitted Mistake
Misunderstanding36
CORPORATE RIVALRY ?
37
DESTRUCTIVE POLITICS...
“I once mentioned that if somebody puts a gun to my head, you
either pull the trigger or take the gun away because I will not
move my head. I think Ms.Mamta Banerjee has pulled the
trigger,”
Ratan Tata
Chairman,Tata Motors Ltd.FRONT LINE ,Volume 25 - Issue 22 :: Oct. 25-Nov. 07, 2008. INDIA'S NATIONAL MAGAZINE38
FIGHT FOR NANO BEGINS – AGAIN
• Orissa offered land at Gopalpur
• Maharashtra, Andhra Pradesh, Uttarakhand also made an offer39
West Bengal’s loss another State’s gain
Karnataka 1st to offer
Gujarat offered 3 strategic locations
- Mundra in Kutch district
- Charodi in Sanand &
- Surat
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Winner - Gujarat
Reliable Infrastructure
Locations - Government owned land
Charodi and Chharal villages in Sanand the ultimate choice
“You are stupid if you are not in Gujarat” - Ratan Tata
Vibrant Gujrat
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BENEFITS TO Loan of Rs 9,570 crores
THE DEAL
Rs 2,900 cr. for Nano plant
Rs 6,670 cr. for Infrastructure development
Repayment of Rs 9,570 cr. loan @ 0.1% over 20 years42
THE SWEETNERS 100% exemption on electricity duty
Concessional power tariff
1,100 acre land comes cheap
No stamp duty, Registration and transfer charges
Payment for land in 8 equal annual instalments43
Benefits to Component manufacturers and Vendors
New Investment opportunities and positive sentiment in Gujarat
Benefit to Real estate market
Additional jobs and training opportunities
BENEFITS TO GUJARAT
44
Vibrant Gujrat
Win-win situation45