You are on page 1of 18

CUMMINS LAUNCHING ENGINES FOR PASSENGER

VEHICLE WITH MAHINDRA & MAHINDRA TO


SUPPORT DOMESTIC MARKET IN INDIA
STRATEGIC INITIATIVE STUDY
Page 1 of 18

Contents

Contents ................................................................................................................................................ 1
Abstract ................................................................................................................................................. 2
Company Profile .................................................................................................................................... 3
Influencing Factors and Challenges ....................................................................................................... 3
Strategic Initiative Approach .................................................................................................................. 4
Passenger Car Industry back ground .................................................................................................... 5
Who are Mahindra and Mahindra? ........................................................................................................ 7
Why Cummins to choose Mahindra& Mahindra (M&M) ......................................................................... 8
Strategy Management and Decision Making ....................................................................................... 10
Manufacturing Strategy .................................................................................................................... 10
Sourcing and Procurement Strategy ................................................................................................ 11
Financial Profitability Analysis .......................................................................................................... 11
Project Management ........................................................................................................................... 13
Time line and Road Map for execution of Project: ............................................................................... 14
Risk Analysis ....................................................................................................................................... 15
Conclusion .......................................................................................................................................... 16
Bibliography ........................................................................................................................................ 17


Page 2 of 18

Abstract
According to Brache, Alan (2006), Strategic initiatives are the means through which a vision is
translated into practice. Kaplan, Robert explains that Strategic initiatives are collections of finite-
duration discretionary projects and programs, outside of the organization's day-to-day operational
activities, that are designed to help the organization achieve its targeted performance.
The purpose of this report is to provide strategic initiative approach for Cummins to launch passenger
vehicle engines for Mahindra & Mahindra to support domestic market in India using decision making
and project management tools. There are various approaches which are provided through making
engines related to different branded companies that help to drive over their business. The report
generated provides a variety of details related to the key points overview which was developed as per
the managing instructions and activities. These options are very critical in order to obtain sustainable
success.

Page 3 of 18

Company Profile
Cummins a global power leader that design, manufacture, distribute and service engines and related
technologies, including fuel systems, controls, air handling, filtration, emission solutions and electrical
power generation systems. Cummins Engine Business manufactures are related to certain markets
where it needs to complete line of diesel and natural gas powered engines. These engines are used as
onhighway and off-highway use. All these markets are included with many heavy medium duty trucks,
bus or any other recreational vehicle. These vehicles are based on the light duty automotive and used
as number of industrial standards as agricultural, construction, mining marine, oil, gas and military
equipments. These helps the Cummins Engine Business provides a maximum range over certain new
parts and services that are remanufactured through extensive distribution networks. The Cummins
engine range from size of more than 31 to 3500 horsepower and from 1.4 to 91 litres.
Headquarter at Columbus, Indiana. Cummins India established as joint venture in India with Kirloskar
Engines in 1962 and currently they are operating in 190 countries.(www.cummins.com)
Influencing Factors and Challenges
There are few major factors which are provided with potentially to significant affect over Cummins that
does business at present and in the future. The challenges that include are:
Globalization
Increasing Customer Expectation
Increasing Regulations
Changing Demographics

Page 4 of 18

Strategic Initiative Approach
Cummins remained a pioneer, strong, independent and global power leader committed to the
development of engine technology and related services. Opportunity is to extend its engines business
activity to passenger vehicle for domestic market at India. Thus it helps Cummins in utilising its plant
capacity, customer service centre, dealership centre to the extent and provides overall profitability to
the organisation. Positioning itself for long-term success, Cummins continued to expand its capabilities
in technology, product and capacity enhancements. This was evidenced by USD $149 Million in capital
investments in the current financial as compared to USD $136 Million in the previous financial. Believed
these will better prepare the Company for decisive growth upon market recovery. With the Central
Pollution Control Board regulating towards cleaner emission norms for engines used in generators,
Cummins has evaluated numerous technologies and products and developed Fit for Market solutions
to best meet emissions regulations cost effectively. Cummins prepare to take advantage of new
opportunities arising from the implementation of the new norms. Cummins always encouraged
investing on new opportunities and technologies that serves better growth for tomorrow.
Add some more information to support strategic initiative with
proper justification for selecting this passenger vehicle
approach

Page 5 of 18

Passenger Car Industry back ground
Currently, the auto components industry in India is around two-thirds the size of the OEM segment.
This proportion is around one to two times in mature markets of Europe, America and Japan. This
indicates (a) higher proportion of imports of auto components in India by OEMs and (b) lower
replacement market sales. Given the healthy growth prospects of the Indian automobile industry over
the medium term, Society of Indian Automobile Manufacturers(SIAM)expects the size of the auto
components industry to grow at a rate faster than the OEM segment driven by OEMs thrust on
localization and steadily growing replacement market demand.
Indias automotive industry is one of the larger markets in world. Recently India over took Brazil and
placed on 6
th
largest position in passenger manufacturing industry in the world. Exporting passenger
cars helped India to retain its 4th Asias largest exporter next to Japan, South Korea and Thailand. Now
passenger car industry contributes 4 % in Indias Gross Domestic Product (GDP). According to the
SIAM, annual vehicle sales are projected to increase to 4 million by 2015. Car sales trend from 2007-
2013 are as follows:


0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
2007-08 2008-09 2009-10 2010-11 2011-12 2012-13
Q
u
a
n
t
i
t
y

Financial Year
Car sale trend from 2007-2013
Quantity
Linear (Quantity)
Automobile Domestic
Car sale trend
Year Quantity
2007-08 1,549,882
2008-09 1,552,703
2009-10 1,951,333
2010-11 2,501,542
2011-12 2,618,072
2012-13 2,686,429
Page 6 of 18





Maruthi
Suzuki, 45%
Hyundai, 14%
Tata, 14%
Mahindra &
Mahindra, 7%
General
Motors, 4.3%
Ford, 3.9%
Toyota, 3.1%
Honda, 3% Volkswagen,
3%
Others, 4%
According to statistics, here is a high
potential business opportunity for
Cummins tocontributed 7.2% of the
passenger car sales business in
corresponding financial year with a
joint venture with Indian based
automotive OEM called Mahindra and
Mahindra
Page 7 of 18

Who are Mahindra and Mahindra?
Mahindra & Mahindra Limited (M&M) is an Indian multinational automobile manufacturing corporation
headquartered Mumbai, India. It is one of the largest vehicle manufacturers by production in
the Republic of India. It is a part of Mahindra Group, an Indian conglomerate. The company was
founded in 1945 with 2 brothers Mr J.C Mahindra & KC Mahindra.
In 1947 introduced India to the utility vehicle. More than 66 years later still India's premier utility vehicle
(UV) and Tractor Company. It is one amongst the top 5 tractor manufacturing company. In addition to
making ground breaking, launched many more SUVs like the Scorpio Bolero and XUV 500 models.
Mahindra offers cars, electric vehicles, pickups, and commercial vehicles that are rugged, reliable,
environmentally friendly, and fuel-efficient. Acquisition of the Ssangyong Motor Company in 2011
brought a major South Korean utility manufacturer with a presence in more than 90 countries into the
Mahindra fold. Currently, they are operating their business in more than 90 countries. Automotive
businesses cover all transportation needs thanks to strategic synergies between its expertise in design,
manufacturing, and service. According to Financial report, M&M sold 245,700 passenger vehicles with
gross turnover of 798 Million. It is ranked #21 in the list of top companies of India in Fortune India
500 in 2011.
Apart from automotive business, M&M are into many various business activities in Financial,
Aerospace, Defence, Energy, Industrial equipment, construction, logistics, real estate and many other
sectors.


Page 8 of 18

Why Cummins to choose Mahindra& Mahindra (M&M)

There are many other passenger car manufacturing companies in India to support domestic market like
Maruthi Suzuki, Hyundai, Tata, Toyota, Honda General Motors, Ford and so on. Majority of them are
based and head quartered at overseas, where in technology and engines are built by them to support
global business. To support domestic market these MNCs buy engines by importing from head
quartered countries for its passenger car. Because of service and technology limitation, Cummins
doesnt fit into a strategy to provide engines for MNCs operated passenger cars. Next available option
is either with TATA or Mahindra and Mahindra.
For passenger segment, Tata has its own engine manufacturing plant. Hence its not approachable.
And Cummins has a two engine plant facility with TATA as joint venture to support trucks business.
Mahindra and Mahindra is locally based company and currently buying/outsourcing the engines from a
local engine manufacturing company for its passenger vehicles. Due to certain limitation in its current
engine technology, M&M fronting in a sale loss and causing more customer complaints. As Cummins is
pioneered in engine related technology, hence it is an approachable opportunity for them to extend its
business strategy in launching engines for passenger car in joint venture with Mahindra and Mahindra.
Cummins has its own service and dealership centre across India to support engine business, that
support would extent for M&M in providing better customer satisfaction.
M&M was started in 1945 and the company was built around the core idea that people will succeed if
they are just given the opportunity. Employees across the Group constantly challenge conventional
thinking to create solutions that make a significant difference in the lives of our customers.

Page 9 of 18

In 1947, M&M introduced India to the utility vehicle. They are India's premier utility vehicle (UV)
company over 65 years. In addition to making groundbreaking UVs, M&M offers cars, electric vehicles,
pickups and commercial vehicles that are rugged, reliable, environmentally friendly, and fuel-
efficient. Their global presence is in Australia, Europe, Latin America, Malaysia, South Korea and South
Africa.
Mahindra is also there for you through the construction of excellent components, provision of spares,
and commitment to superior service. Their automotive businesses cover all your transportation needs
thanks to strategic synergies in their expertise in design, manufacturing and service.
Their vehicles meet global regulatory requirements such as End of Life Vehicles Directive (ELV) in the
European Union (EU). All their EU export vehicles are ELV certified and hence ensuring safe
dismantling and recycling of fluids in environment friendly manner.



Page 10 of 18

Strategy Management and Decision Making
Project success depends on following deciding factors:
Whether the project is critical to profitable growth
Whether the project is required to meet a customer commitment
The level of urgency of the project, specifically in the current environment
The likelihood that the project generates benefits in the near term
Manufacturing Strategy
Assembly, Testing, Painting: At Cummins facility
Cylinder Block: Casting Outsourced and Machining at Cummins facility
Cylinder head Machining: Casting Outsourced and Machining at Cummins facility
Connecting rod Machining: Casting and Machining at Cummins Facility
Camshaft Machining: Outsource Casting and Machining
Crankshaft Machining: Outsource Casting and Machining
Conveyor system for assembly line production
Multi Spindle Nut runner for all precision torqueing
38 engines to be built in 1 hour to support customer demand
3 Months training to be provide for all assembly operators at M&M assembly plant
Process Flow and Standard operating procedures to be ready before the production training
Value Stream to be mapped to understand the Cycle time
At initial stage of the production launch, production and development trail can be done at current
Cummins R&D and manufacturing facility

Page 11 of 18

Sourcing and Procurement Strategy
- Use of existing supplier source of supplier from existing business for complex parts
- Purchasing strategy to be developed to reduce the material cost from 60 - 50%
- For standard items like bolts, gaskets and sealing can purchase fromexisting Cummins supplier
to maintain standardisation of Engine assembly across global
- Production Part Approval Process (PPAP) to be sign off for all purchasing items from all
Cummins and non-Cummins supplier with standard proper supplier agreement in the first 4
months of the production trails

Financial Profitability Analysis

With respect to above statics chart,NPV has been calculated using the following assumption:
Assumption of positive 5% sale growth for every yearin the next 10 years based on the
historical data

Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Car Sales
Forecast
245700 265356 291892 321081 353189 388508 427358 470094 517104 568814 625696

Cost of the engine ($1250) is an average of 12% of the total cost of the car ($12000)
To start up with material cost is considered as 60% of the total cost of engine i.e. $750
With an capital investment of USD $100 Million and 5% of its cost as maintenance cost for the
following years
Planned human resources of 250 to operate for 3 shifts in a day to get an output of 836 engines
per day

Page 12 of 18




From financial calculation, Launching of engine for passenger vehicle with M&M is a justifiable
strategic initiative to go with. And also it has projected with positive NPV with good IRR.
Considering long term strategy in relation to overall Cummins profitability and sustainability, it
is a good and recommendable choice to proceed.

Product line Financial Analysis for launching Passenger Car Engine
Particulars % of sales 2014 2015 2016 2017 2018 2019
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Initial Investments -
Equipment Capital in USD 100,000,000 $ 5,000,000 $ 5,250,000 $ 5,512,500 $ 5,788,125 $ 6,077,531 $
Profit & Loss
Volumes 245700 282555 324938 373679 429731 494190
Average Unit Price 1,250 $ 1,141 $ 1,141 $ 1,141 $ 1,141 $ 1,141 $
Sales 307,125,000 $ 322,481,250 $ 370,853,438 $ 426,481,453 $ 490,453,671 $ 564,021,722 $
Average Unit Cost 750 $ 685 $ 685 $ 685 $ 685 $ 685 $
Material Cost 184,275,000 $ 193,488,750 $ 222,512,063 $ 255,888,872 $ 294,272,203 $ 338,413,033 $
Manuf acturing Overheads :-
Number of Associates 250 263 276 289 304 319
Cost of Associates $ 2400 per year 625,000 $ 656,250 $ 689,063 $ 723,516 $ 759,691 $ 797,676 $
Depreciation 10% 10,000,000 $ 10,500,000 $ 11,025,000 $ 11,576,250 $ 12,155,063 $ 12,762,816 $
Overheads - Fixed ( 40% of 20%) 40% 36,855,000 $ 32,248,125 $ 29,668,275 $ 34,118,516 $ 39,236,294 $ 45,121,738 $
- Variable (60% of 20%) 60% 55,282,500 $ 48,372,188 $ 44,502,413 $ 51,177,774 $ 58,854,441 $ 67,682,607 $
Warranty 3% 9,213,750 $ 9,674,438 $ 11,125,603 $ 12,794,444 $ 14,713,610 $ 16,920,652 $
Manuf acturing overheads 111,976,250 $ 101,451,000 $ 97,010,353 $ 110,390,500 $ 125,719,098 $ 143,285,488 $
Gross Margin ( A ) 10,873,750 $ 27,541,500 $ 51,331,022 $ 60,202,081 $ 70,462,370 $ 82,323,201 $
Gross Margin % to sales 4% 9% 14% 14% 14% 15%
SAR 5% 15,356,250 $ 16,124,063 $ 18,542,672 $ 21,324,073 $ 24,522,684 $ 28,201,086 $
Packing 2% 6,142,500 $ 14 $ 14 $ 14 $ 14 $ 14 $
SAR (B) 21,498,750 $ 16,124,076 $ 18,542,686 $ 21,324,086 $ 24,522,697 $ 28,201,100 $
PBIT ( C = A - B ) (10,625,000) $ 11,417,424 $ 32,788,336 $ 38,877,995 $ 45,939,673 $ 54,122,101 $
PBIT % to sales -850000% 1000384% 2872883% 3406453% 4025190% 4742127%
Interest cost ( D ) - For 3 yrs 2% 6,142,500 $ 6,449,625 $ 7,417,069 $
Prof it Bef ore Tax / savings ( E = C - D ) (16,767,500) $ 4,967,799 $ 25,371,268 $ 38,877,995 $ 45,939,673 $ 54,122,101 $
Present Value and Rate of Return PROJECT TITLE: Engines for Passenger Vehicle
Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Dec-20 Dec-21 Dec-22 Dec-23 Dec-24
(US$000) Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Savings -16,768 4,968 25,371 38,878 45,940 54,122 63,596 74,560 87,239 101,894 118,827
Expense 0 0 0 0 0 0 0 0 0 0 14,526
Tax Depreciation 28,571 21,837 17,098 13,788 12,742 13,379 14,048 6,073 6,377 6,696
PBT -16,768 -23,604 3,535 21,780 32,152 41,380 50,218 60,512 81,166 95,518 97,605
Effective Tax Rate 37% 37% 37% 37% 37% 37% 37% 37% 37% 37% 37%
Tax -6,204 -8,733 1,299 8,004 11,816 15,207 18,455 22,238 29,828 35,103 35,870
PAT -10,564 -14,870 2,236 13,776 20,336 26,173 31,763 38,274 51,337 60,415 61,735
Capital 100,000 5,000 5,250 5,513 5,788 6,078 6,381 6,700 7,036 7,387 7,757
Working Capital -44,023 6,974 2,317 -1,486 -3,309 -3,612 -3,939 -16,020 -18,409 -21,155 -24,313
CFWD-Tax Effect 0 0 0 0 0 0 0 0 0 0 0
(US Tax Entities Only)
Total Cash Flow -154,587 15,675 21,139 23,875 25,026 29,225 34,821 29,601 31,966 38,249 50,888
Cumulative Cash Flow -154,587 -138,912 -117,773 -93,897 -68,871 -39,646 -4,824 24,777 56,743 94,992 145,880
NPV 7,599
Int Rate of Return 11.98% Expense Case: Base +0% Discount Rate
Payback Years 6.2 Savings Case: Base +0% 11%
Capital Case: Base +0% IRR % Estimate
Volume Case: Base +0% 25%
Page 13 of 18






.






Project Management
This project is driving through a methodology called Value Package Introduction (VPI) with defined Key
milestone with different phases from M0 to M6 for smooth running of project launch.
Page 14 of 18

Add few more details on project
management


Time line and Road Map for execution of Project:



Activities Time line Resp Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15
Plan
Actual
Plan
Actual
Plan
Actual
Plan
Actual
Plan
Actual
Plan
Actual
Plan
Actual
Production Trail
Facility/Infrastucture
Readiness
Person-A
Person -B
Person- C
Person D
Person-E
Person-F
Person-G
Quality Approval
Production Launch
Time Management
Financial
Analysis/Approval
Design
Development/Approval
Purchasing/Supplier
Development
Page 15 of 18

Risk Analysis
The quantifiable likelihood of loss or less than expected returns resulting from uncertainty.
Types of uncertainty:
External:
Customer Demand
Supply of raw materials
Internal:
Time duration and resource requirements
Success/Failure prospects

Other uncertainties:
Failure in design development and quality
Delayinfrastructure
Resource availability
Manufacturing facility capital cost
Market uncertainties
Variation in price and demand
Resource availability & costs
Competitors promotion offer

Page 16 of 18

Add few more details on Risk Analysis
related to this project:
Source of Uncertainty:
Risk analysis:
Risk of aversion:




Conclusion

Input required related to strategic initiative
described based on business information and
opportunities for Cummins and M&M on the long
term
Page 17 of 18

Bibliography
Brache, Alan (2006). Implementation, New York: McGraw-Hill. p. 195
Kaplan, Robert. The Execution Premium: Linking Strategy to Operations for Competitive Advantage. 103: Harvard
Business School Press.

References:
www.wikipedia.org
http://www.siamindia.com
http://www.icra.in
www.economictimes.indiatimes.com

You might also like