Page 61 - DMGT501_OPERATIONS_MANAGEMENT

Unit 2: Product and Service Design

Notes
Though prima facie the cost objectives seem to be extremely ambitious, it is my belief that
it will be possible to manufacture such a vehicle at the prices that have been mentioned
based on a sympathetic Government Tariff structure.
Box 2: Projective Computation of Manufacturing Costs

Assumptions
1. There will be a logical relationship between the manufacturing cost of existing cost of
existing Cars and the proposed Car.
2. Comparison is made on the basis of Ambassador Car inputs.
3. Selling and marketing costs assumed at 10% of the selling price.
4. Overheads assumed at 15% for Ambassador.
5. Weight of Maruti Car assumed at 650 kg.
Maruti Proposal
Assumed material costs (2) : 30% above Ambassador
Cost per kg. : 29.47
Material cost : 19,150 approx.
Overheads - 30% (3) : 9,500
Selling costs : 3,200
Selling price (1) : 31,850

1. Selling price is the ex-factory value of the product. All government taxes and levies
are extra.
2. Higher overheads have been assumed to cover higher depreciation, amortization
and interest costs.

Box 2 gives an analysis of how this price has been theoretically arrived at. It may be noted
that sub-compacts are also sold at similar prices.
The fact that Maruti got its product selection right has provided it a competitive advantage
that has been retained by the company for the last two decades. In spite of the entry of
international companies into the automobile sector, no manufacturer has been able to
break the stranglehold of the Maruti 800.
According to Arindam Bhattacharya of A.T. Kearney, "The Maruti 800 is a great product.
No other car in the world can match its functionality and price... There is need for such a
car, which competes not with other cars but two wheelers."
Questions

1. Why, do you think, Maruti 800 was such a success?
2. Discuss the positioning of the Maruti 800 car.

2.15 Summary

Customer satisfaction, functionality of the product, cost considerations, ease of production
and maintenance are some of the major considerations while designing any product or
service.

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