Scorpio's Low-Cost Drive

In the backyard of Mahindra & Mahindra's (M&M) Kandivli plant, a far-flung Mumbai suburb, an obscure workshop called the Integrated Design and Manufacturing (IDAM) centre looks almost inconspicuous.

But even a couple of years back, if you wanted to see what was happening out there, you would have been denied entry "" unless you were among the top bosses or belonged to the 120-member team that developed M&M's sports utility vehicle (SUV), Scorpio.

The out-of-bounds IDAM centre, which brings the various functions of product development "" design, development manufacturing, purchase and so on "" under one roof, is modelled on the lines global auto giants best practices. IDAM , the Scorpio's birthplace, is one of the major reasons why M&M maintained a tight grip on investments in the SUV project.

When Scorpio hit the roads in mid-2002, the company had spent $ 120 million (around Rs 550 crore) on its development and on upgrading its production facilities. In comparison, global giants spend close to $ 600 million (upwards of Rs 2,500 crore) for a similar exercise.

The trade off was that the Scorpio landed on the roads after five years in the laboratory "" international manufacturers take half that time to develop a product from scratch. M&M executives say the delay which occurred in phases like product validation and vendor approvals would be dealt with in the future.

Rajesh Jejurikar, vice president, marketing, automotive sector, M&M, says, "Scorpio was a journey towards creating a new category and a new market." This was partly because the box-shaped multi-utility vehicles (MUVs) that M&M had been selling for decades were losing charm in the face of newer technology products "" newer entrants like the Toyota Qualis had raised customer perceptions of MUVs.

Further, the market for utility vehicles and cars were merging. "Before superior technology came in, customers chose UVs for their off-road capabilities and cars for comfort," adds Jejurikar. There were few options among vehicles that would provide both: this was what the Scorpio was hoping to do.

But M&M had to ensure that it did not increase costs. So it chose to go back to customers throughout the process of product development. In the five-year period that the Scorpio was under development (1997-2002), the company undertook five customer surveys to understand changing expectations. In comparison, the Bolero, which was launched by M&M in August 2000, availed of only one customer survey.

The first initiative where M&M differed from the way it traditionally looked at product development was in involving the project team right from defining the project in early 1997.

Instead of giving the project team specific requirements in styling, wheelbase, engine transmission and so on (areas like styling of the vehicle are normally suggested by the marketing department), the team was asked to find out what the customers wanted: whether it was styling or something as basic as the powertrain. While at it, the team got vital information expected fuel efficiency and price of spare parts.

In June 1997, the company started work on developing the Scorpio. It sent a team of 20 people to the UK to work with styling consultants for the first time; the team included not just auto designers, but also manufacturing personnel. Says Pawan Goenka, executive vice president, product development, automotive sector, M&M, "This ensured that whatever panels were designed had no manufacturing difficulty. As manufacturability of design was looked at upfront, the payback was that we'd not have to do any major rework of the dies."

This reduced the wastage factor. For example, in Bolero's case the reworking of dies was 25 to 30 per cent while it was just 10 per cent for the Scorpio.

Another advantage was that the entire team comprising marketing, manufacturing, purchase, quality, design, testing and service were located in the Kandivli boondocks. This helped in coordination. "One of the traditional problems in product development has been that people keep their functional blinkers on," says Goenka.

M&M split employees involved in the project into 19 cross-functional teams. So the interior trim team that looked at the panels and upholstery inside the vehicle had design, manufacturing and purchase personnel. This team would take responsibility for delivering on all parameters of cost, quality and performance.

All 19 teams were given cost targets. These teams broke down the targets to the individual component levels. Goenka calls it "designed to cost". For example, a team shopping for seat fabrics knew exactly how much it could pay for a metre of fabric. If it decided to purchase a higher quality of fabric that cost more, the purchase would be approved by the senior management only if the team showed other areas where it could make up.

Then, instead of following the normal squeeze-the-supplier route, the company altered the way of working with suppliers. Earlier, if the company required air-conditioning for a vehicle, it used to go to suppliers and provide requirements "" four vents of 10 sq cm had to deliver a velocity of air, flowing at five metres per second.

In Scorpio's case, it told suppliers that the vehicle had to be cooled from 40 degrees to 27 degrees in 13 minutes. Then suppliers decided on how many vents were required or what was the velocity of air to be delivered.

"Even if we pretended to know how to design the A/C system we would not be as efficient in it as somebody who did that for his livelihood. Only suppliers can perfectly match performance with system costs," says Goenka. Initiatives like these helped M&M get down the final vehicle cost by 10 per cent.

In the sourcing of dies, instead of sourcing everything from a single supplier the company went to different sources. Critical dies like those for exterior panels were given to Japanese manufacturers like Fuji and Miyazu. The remaining were given to tier two, tier three and tier four suppliers. The condition was that Fuji would do the total management of dies coming from all the suppliers.

So the onus on quality delivered by all the die suppliers, would be on Fuji for which it would be paid an additional fee. And in dies the company spent only US $ 25 million (approximately Rs 115 crore). If it had sourced the dies from a single source, the cost could have been an additional Rs 40 crore to Rs 50 crore. Even in sourcing its machinery M&M adopted a similar method of sourcing (see box).

M&M did not take a detour from its original plan even after the product took five years to hit the road, even though new launches from competitors were changing customer perceptions. Sure, it made minor last-minute modifications like changing its headlamps and taillamps by sourcing it from a Korean manufacturer.

But it did not make changes in other areas that would require large-scale modifications like changing the flat window panes of Scorpio to the now preferred curved-aerodynamic panes.

Today, with a production of 80 vehicles per day, M&M's plant in Nasik (the only one that manufactures Scorpio) is running to its full capacity on a single shift. The company claims that sales are exceeding 2,000 units per month.

Scorpio's tight-fisted strategy seems to have paid off.

Multi-supplier manufacturing

Even when M&M set up its production plant, its fetish for trying out various combinations saved costs. For example, when the company had to invest in a hemming press (which clamps together the inner and outer frames of door panels) for Scorpio's manufacturing unit in Nasik, it decided not to award the machinery contract to a single supplier.

Instead it went shopping and sourced the dies from Japanese manufacturers. The fixtures for the machine were supplied by Korean manufacturer Wooshin. And a Mumbai-based manufacturer made the hemming press. The integration of these three was M&M's responsibility. The company ensured that all the three suppliers were present when the machine was being set up, so that last-minute hurdles were prevented.

But communication was a problem with the Koreans and Japanese. It was difficult to find interpreters who were technically sound. Finally an universal language, engineering drawings, came to the rescue.

And as analysts point out, M&M was able to assemble the machine at approximately $ 0.4 million (approximately Rs 1.83 crore), when the cost could have been nearly double ($ 0.75 million) if the machine was sourced from a single supplier.