Tata Motors succeeds with Ariba sourcing systems

Tata Motors partnered with Ariba to achieve their goals of reduced costs, and soon learned the potential cost-cutting that would be available through using Ariba Sourcing

Tata Motors is the largest automobile company in India with revenues exceeding USD7 million.

The company leads the market for commercial vehicles, and is the second-largest passenger car company with winning products in numerous categories.

More than four million Tata vehicles have been on the road since the first roll-out in 1954.

Tata Motors employs 22,000 workers in 40 countries who are driven to be the "best in the manner in which we operate, best in the products we deliver, and best in our value system and ethics".

However, in 2001, Tata Motors started the year off with major challenges looming on the horizon.

Revenues became sluggish as the economy started to slow in India, and the company noticed a drop in market share as it fell prey to the cyclicality of business.

Tata Motors experienced a decrease in its operating margin and product development expenses were getting out of control.

To make matters worse, new competition continually arose.

In 2000, there were only eight domestic competitors but by 2010 there are expected to be more than 15.

The company realized that something needed to be done in order to regain their lead and truly become a world-class organization.

To combat the issues it faced, Tata Motors established a three-tiered plan focused on turnaround, growth, and leadership.

It also made the decision to partner with Ariba to achieve those goals.

The procurement team wanted to reduce costs as much as possible, and soon learned the potential cost-cutting that would be available through using Ariba Sourcing.

In the short term, the team needed to improve growth by strengthening the sales and services networks and creating products that would meet market needs.

Its long-term goals included becoming a global leader that created world-class products, as well as to become a dominant, international business that used globally benchmarked processes.

Initially, Tata Motors conducted a cost structure analysis to reveal which areas most needed work in order to efficiently reduce costs.

Direct materials consumed nearly three-quarters of the cost of a vehicle, so the company started there.

Tata Motors began its spend management journey with six specific areas in mind.

Cost reduction was paramount, as was focusing on reducing direct materials, new product development, Capex, and all service and contract costs.

The team also wanted to place an emphasis on low-cost country sourcing, and continuously benchmarking to maintain high spend penetration.

Today, price reduction is the norm at Tata Motors.

"Cost reduction has become a way of life to stay competitive," says Amit Madankar, Divisional Manager at Tata Motors.

To date, the aggressive programmes that the team has implemented have helped to significantly offset massive input price increases and the company has achieved nearly one billion USD in savings.

To help achieve its eSourcing goals, Tata Motors put a minimum requirement on all eSourcing - anything greater than Rs 5 Lacs annually must be sourced on-line.

This mandate made it possible to reduce initial loss and keep the break-even point as low as possible for events occurring after the first wave of savings.

Advanced sourcing was also required for all new products that were created.

The success that Tata Motors has achieved has encouraged the team to continue along its journey to spend management excellence.

The team's future plans include expanding buyer and user group empowerment, as well as running more events and placing even more spend under management.

Tata Motors also wants to improve savings compliance and gain more visibility into spend - all of which they believe can be easily accomplished by partnering with Ariba.

Tata Motors is releasing its newest model in just a few months - the world's least-expensive car.

And this team acknowledges that the ultra-low price tag could never have been achieved without low-cost suppliers and effective sourcing initiatives.

Along the journey to spend management excellence, Tata Motors has learned some best practices and tips for success.

First, the team recommends choosing the right categories to get the best return on the investment.

To determine how to proceed, look into the ease of supply and how great the business impact will be.

Begin sourcing early, as Tata Motors found first-hand that many costs are locked in once the product goes beyond the design phase.

Pruning material costs in the early stages is key to achieving maximum savings.

Finally, being aware of the right process with the right tools and when you need help is critical.

The team strongly recommends using the experts to gain the best possible results at the lowest risk.

Tata Motors Limited is India's largest automobile company, with revenues of Rs 32,426 crores (USD 7.2 billion) in 2006-07.

It is the leader by far in commercial vehicles in each segment, and the second largest in the passenger vehicles market with winning products in the compact, midsize car and utility vehicle segments.

The company is the world's fifth largest medium and heavy commercial vehicle manufacturer, and the world's second largest medium and heavy bus manufacturer.

Ariba is the leading provider of spend management solutions to help companies realize rapid and sustainable bottom line results.

Successful companies around the world in every industry use Ariba Spend Management software and services.

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