1. A Presentation on
Prepared by:-
Mehul Rasadiya
Submitted to:-
K.K. Parekh Institute of Management Studies
(Amreli)
1
Cost Leadership Strategy
Ms. Brinda Raycha
2. 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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3. 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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4. 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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5. 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 pricing5
6. 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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7. 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 Power
of Buyers
Driving prices far below
competitors, causing them to
exit, thus shifting power with
buyers back to the firm.
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8. 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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9. COST LEADERSHIP STRATEGY:
NEW ENTRANTS
Threat of new
entrants
Bargaining
power of
suppliers
Rivalry
among
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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10. COST LEADERSHIP STRATEGY:
SUBSTITUTES
Threat of new
entrants
Bargaining
power of
suppliers
Rivalry
among
competing firms
Bargaining
power of
buyers
Threat of
substitute
products
Product
Substitutes
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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11. To develop TATA into a world class
Indian car brand for innovative
and superior value vehicles
VISION
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12. • 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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13. “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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17. 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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18. 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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25. 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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26. 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 Power
of Buyers
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27. 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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28. Less possibility of threat of
potential EntrantsThreat of new
entrants
Bargaining
power of
suppliers
Rivalry
among
competing firms
Bargaining
power of
buyers
Threat of
substitute
products
The Threat of
Potential Entrants
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29. Bikes
RickshawThreat of new
entrants
Bargaining
power of
suppliers
Rivalry
among
competing firms
Bargaining
power of
buyers
Threat of
substitute
products
Product
Substitutes
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30. 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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38. 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
39. 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
41. 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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42. 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
43. 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
44. 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 Guj
