e-drive for revival

Case Study

How e-sourcing became one of the key elements in Tata Motors' turnaround

Tata Motors recently crossed a milestone to produce over 3 million vehicles making it one of the 10 largest vehicle makers in Asia-Pacific. This year, it's profits were Rs 300 crore. August sales were up by 37 per cent over last year.

Yet just three years ago, the company was reeling under losses of about Rs 500 crore. Ravi Kant, who then joined as the executive director, adopted multiple initiatives to reduce costs and one these included e-sourcing.

In 2001, it hired FreeMarkets. In three years, it has done more e-sourcing projects than any other company in India "" total bidding of around Rs 1,500 crore and implemented savings of more than Rs 75 crore (about 5 per cent).

Today, Tata Motors does about 20 per cent of its purchases through e-sourcing.

"Initially I was hesitant, but what appealed were the quantum reduction in cost and the transparency in purchasing. It controlled 70 to 80 per cent of the cost," says R Chakraborty, chief strategic sourcing, passenger car and commercial vehicle business, Tata Motors.

The company started with pilot programmes to determine if online sourcing would be cost-effective and efficient.

In the first year, Tata Motors went ahead with eight to nine smaller e-sourcing projects for fasteners, tyres, leaf springs, oils and lubricants.

The next year, more complex materials like castings, sheet metals, even car machinery, seat, injection mouldings and bumpers were added.

Till date the company has conducted 300 reverse auctions. Some 20 per cent of the projects also involved international suppliers. Though only one or two contracts went to international bidders, it has helped Tata Motors identify competitive global suppliers.

"Perhaps when the duty structure comes down they could turn out good business partners," says a company source.

Tata Motors' biggest e-sourcing project was a reverse auction for steel last month. Steel prices have risen 30 to 40 per cent in the last six months and this has put enormous pressure on auto companies, especially the competitive commercial vehicles segment where the increase cannot be passed on to the consumers.

The company took about three months to do the ground work, the project started in mid-April 2003 and the final auction took place in mid-August.

Suppliers from countries like the US, Mexico, Brazil, Ukraine, Korea, Japan and Malaysia participated, including some of the world's biggest players like Posco and US Steels.

"We want to keep a window open for international steel vendors, because they have better technology and price stability," says Chakraborty.

In many categories of steel there were savings for Tata Motors when compared to the historic price.

In other cases, it was able to stem price increases and get fixed price contracts for two to seven months.

Says Chakraborty, "We are a professionally managed company and don't go in for initiatives that are without benefits. E-sourcing has given us huge benefits and we hope it will continue to give us more."