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Tata Motors' long-term plan for its SSC

Jun 24, 2013 | By |

Sandeep Kulkarni, head of Tata Motor's global delivery centre, explains how its SSC can become a profit-making business.

India’s national pride, Tata Motors, anchored its shared service centre in Pune, the country’s automobile hub about 120 kilometres south east from Mumbai.

Serving 30-plus group companies worldwide, the automaker’s SSC has undergone many phases of change since its inception in 2004. Following the motor giant’s purchase of Jaguar Land Rover in 2008, its SSC staff numbers are poised to balloon from 140 to around 900 in the next three years to meet greater demand of services, Sandeep Kulkarni, head of Tata’s global delivery centre (GDC) tells CT.

The SSC currently handles accounts payable and receivable, payroll, Sarbanes-Oxley compliance, fixed-asset accounting and general ledger.

But it has moved beyond these more basic financial processing and expanded on two fronts: offering more services to its burgeoning group companies beyond AP to other functions within financial planning, Human Resources, Purchasing and sales and marketing support.

Turning a profit
In addition, it is rolling out analytic services to all of its global subsidiaries spanning from Korea to Spain. Eventually, the centre could turn this into a profit-making business offering services to companies beyond the Tata Motors group, he says.

Tata embarked on this goal in 2012 – although it has been providing data analysis since 2006 – with  four analysts. Early successes include substantial savings from better contract management and cutting down the number of erroneous claims.

Kulkarni says the goal is to expand the team with an additional 20 to 40 data staff well-versed in statistics and adept at building analytic models. Basing its centre in Pune, India’s industrial and university town hailed as the “Oxford of the East”, Tata is able to attract skilled graduates who are eager for work.

With an enlarged service scope, Tata’s SSC is therefore poised to shift from a cost centre to a profit making model. It will start charging service fees to its business units in three to six months, says Kulkarni, who is mindful of transferpricing implications.

“Whatever mandatory margin we are supposed to be charging, we will charge them, but we will reinvest those margins…for rolling out better processes, better automation,” he explains.

To get to this stage, Tata had to reconcile various legacy systems and fixed processes adopted by the myriad entities within the group. Back in 2003, Tata upgraded their SAP ERP, which served as a backbone in making the consolidation of company-wide information possible.

Utilising data stored in the ERP and running SAP’s Business Intelligence, or SAS software across the board helped Tata’s SSC to transform into an analytics engine, Kulkarni says.

“India’s automotive industry is under a tremendous costs pressure, so there are a lot of efforts on optimising costs,” Kulkarni says. “We see lots of pull for data analysis and provide the information back to the business units.”

The information that is most in demand is staff spending, expenses and procurement of services, he points out.

Utilising analytics tools has now enabled Tata to zoom in and make better judgment on the group’s expenditure on consulting, car hire and other procurement services surround its hotels and car plants such as cleaning and gardening.

In the past, the identical service, say shop floor cleaning sold by the same vendor for a Tata location in a city and another site was tracked under various names and were offered at different prices. There was no common way to identify or compare such data and the expenses snowballed, he recalls.

To defray costs, it makes sense for the company to leverage on analytics. But before it could drill down its vast data trove, Tata’s teams had to first build a services master and centralise 360-odd categories of the group’s service spending. Then it added on subcategories, such as change of freight, or dividing hotel rooms into single room and double room, and car hires into economy or luxury. The whole process was then automated.

Once such consolidation, and analysis of data kick started, the achieved saving can range between 8% to 10%, according to industry benchmarks, he says. “Even if we conservatively think it’s about 5% of the services spent saving, it can [still] fetch almost a hundred million dollars,” he adds.

Beyond the usual cost savings a SSC produces, Kulkarni’s centre saved approximately $18 million last year. This was achieved by automating AP, catching egregious errors, duplicates and wrong payments and policy implementation. “As these analytics projects [keep] going, it (the savings) could [double] in the coming year,” he says.

The SSC ageing process
For the older SSCs, achieving ongoing savings is more easily said than done. To get the continued buy-in from the top brass, the key lies in providing value add, Kulkarni believes.

Generally speaking, a SSC’s savings can be achieved in the first two years through centralisation of activities and moving headcount to lower cost offshore destinations. Efficiency improvements can result in marginal savings from year two to year five.

Nonetheless, the saving effect is watered down as a SSC matures.

“That’s why we are putting our analytics as a separate service offering because that’s what gives maximum benefit to the group, not by centralising the job,” he says. “As we do more and more analysis, the savings go up because we look at the different categories, and start doing deeper dive analysis around it.”

For example, since Tata offers annual maintenance contracts (AMCs) at a fee to its customers, say replacing certain auto parts and pays its dealers accordingly, its centre needs to process millions of such claims each year. With limitation of manpower and resources, Tata could not possibly nose through every submission or track them. Material losses incurred as
a result.

“Until now, we did not have enough hands around the whole AMC process to see whether we were pricing the annual maintenance contracts right—are we incurring more expenses on our annual maintenance contracts, are we profitable or just breaking even?” Kulkarni says.

To decode that mystery, his team focused on erroneous claims. Based on the past performance of a particular spare part or a certain dealer, or the threshold of the claim, Tata can now gauge whether additional investigation is required. The company can identify which submissions to concentrate its energy on.

Predictive analytics has buttressed Tata’s spare parts inventory management since the centre will now be able to predict the failure of a particular auto part based on its usage.

“If the truck is used in the countryside to carry heavy loads, then we know that its fan belt is likely to fail more often than one that’s used for city purposes— we are then able to identify and optimise our inventory of the fan belts with the dealers,” he explains. “We can also identify whether that claim is genuine or not and we can calculate the cost against each AMC contract that we have.” 

Going paperless
New technology is a key to a SSC’s upgrade. Since this June, Tata has adopted an electronic payment method to process all the payments for its 60,000-plus vendors and 80,000 employees worldwide.

The company works with India’s HDFC bank, the State Bank of India, and HSBC to enable real time gross settlement, the format of electronic payment in India.
The company is also evaluating new technologies such as mobile to enhance its SSC function.

Kulkarni believes a SSC needs to constantly think about creating additional value. “Unfortunately most of us concentrate more on processing and only on processing,” he says. “It’s important for a SSC to start with processing capability, but over time bring value and be a strategic partner to the business.”

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