Formerly known as TELCO (Tata Engineering and Locomotive Company), Tata Motors, Ltd. is India’s largest passenger and commercial vehicle manufacturer. Though it is about to buy Jaguar and Land Rover from Ford, in 2001 Tata Motors was nearly bankrupt and on the verge of taking the entire Tata Group down with it. At that time, interest rates had jumped in India, dropping vehicle volume just as rapidly as the rates rose. Burdened by high fixed costs, Tata Motors was in a squeeze. “We made the case to Tata that 65% to 70% of the revenue of the company is purchased goods and services, primarily direct materials such as plastics, glass, metal, rubber, etc.,” says Daryl Rolley, senior v.p. and general manager, North America and Asia-Pacific, Ariba (Sunnyvale, CA; www.ariba.com). As a spend-management and procurement solution provider, Ariba proposed applying online reverse auction technology to several commodity categories to help them find competitive low-cost suppliers including those in regions outside of India.
“We ran the programs, drove the sourcing projects, ran the technology, found the suppliers, trained them on the software, and ran the reverse auctions that drove down the total cost of each commodity to the marginal cost of that supplier,” says Rolley. With familiarity, Tata took control of more aspects of the process to the point that, Rolley claims, “it has penetrated 40% of the company’s total sourcing spend, and added well north of $100 million to the bottom line.” Rolley admits Ariba is “speeding up the introduction of low-cost country suppliers to the developed world,” but adds that this process is “inevitable as new technologies make it easier and faster to do this efficiently.” However, he is quick to state that the lowest total cost suppliers aren’t always located in China and India, especially when sourcing components and products that are rich in intellectual property. In addition, he says, a number of Tier 1 suppliers have adopted the process and technology, especially if they were suppliers in a previous sourcing exercise. Rolley defends the practice this way: “The information that you glean from an online sourcing exercise is simply the cost curve of that industry at that point in time, and it provides an enormous amount of information to everyone—including suppliers—of where they are in that chain.”—CAS