During the summer months, I recorded a podcast with Ariba's Ravi Kumaraswami about Tata's quest to build a $2,500 car which you can listen to and learn more about in a recent post on Supply Excellence. In this post, Justin Fogarty highlights the changing supplier management philosophy required to bring such a low-cost product to market. Justin summarizes this approach, "rather than the typical model, where a company creates the tech specs for parts and then asks suppliers for their bids, Tata Motors simply provided the output they expected and allowed suppliers to get creative with their designs, materials and prices. In other words, Tata described the 'goal' they wanted to achieve with a certain part and the suppliers took that and ran with it."
This type of sourcing approach is a perfect fit for sourcing optimization techniques that allow suppliers to provide, in one vendor's words, "expressive bidding," that let suppliers get creative with their offers. Many sourcing providers offer this type of capability today, but CombineNet is probably best known for their offering in this area. It's also possible to do this type of negotiation offline or in an online sealed bidding format. I'm not sure how Tata approached it in their case, but consider the cost reduction power of providing suppliers with a process-oriented specification rather than a technical one. In one case, Justin writes that Tata specified that windshield wipers had a goal of "cleaning the windshield" at suitable levels, but left the rest up to suppliers. Tata in essence "let the suppliers come to them with ideas on how to achieve that goal (1 wiper or 2?) as well as the materials used." An approach that US automakers could learn from? Absolutely!
- Jason Busch