Standing astride a 30-metre-long contraption that resembles a pasta-making machine for giants, Joe Repovs is extolling the virtues of "roll-forming" technology with all the gusto of a gourmand who's discovered some new food-preparation device. At the far end of Samco Machinery's plant in Toronto, a coil of narrow steel is being fed into the machine's succession of cold-rolled steel spools. As the ribbon of wobbly metal rolls along, it matures into a firm, elongated trough, which the machine then cuts into 1.5-metre segments and punches with holes. Finally, the lengths of metal are fed through a "stretch bender," which adds gentle angles to what is now a fully realized chassis component. Repovs, a fatherly cinder-block of a man, nudges one with his boot. "Other chassis designs involve more pieces and more processes. This means more variation, but they also increase the cost," he says. The Samco chassis component, however, is made entirely from one piece of metal, with no heating, welding or banging required. Most importantly, no steel is wasted. The result is a thinner, tougher and cheaper chassis.
The key word here is "cheap." Because of Samco's imaginative approach to re-engineering a highly standarized auto part, its component is being used in the chassis of India's Tata Nano, the world's most frill-free car. Resembling a slightly roomier version of Mercedes-Benz's Smart car, the Nano has a two-cylinder, rear-wheel-drive engine that gets a mouth-watering 22 kilometres per litre in the city (Toyota's Prius gets 25 kilometres a litre). To maximize space, the wheels of the Nano have been pushed to the corners of the frame and the powertrain is tucked under the seat. What you won't find in the base model of the Nano, however, is power steering, a radio, passenger-side rear view mirror, sun visors or air conditioning. It also has only one windshield wiper. All these efficiencies translate into a stunningly low sticker price of just $2,500.
Tata Motors, the company that makes the car, clearly senses the possibilities. In West Bengal, in a sprawling industrial complex that would have made Henry Ford blush, Tata is building an assembly plant capable of turning out 250,000 Nanos per year. Its target market: India's tens of millions of scooter and motorcycle riders.
Besides being blessed with a massive customer base, the Nano is notable for the way in which Tata has completely overhauled the production and design process while hoovering out costs along the way. "The car was designed from scratch, and they made it as modular as possible," says Mark Johnson, chairman of Innosight, a Massachusetts-based management consulting firm that has scrutinized Tata's approach. The world's carmakers are watching these developments intently because they may well be the most radical innovations to sweep over the global auto industry since the Japanese embraced the miracle of just-in-time inventory in the 1980s. In essence, Tata has intentionally turned the traditional approach to making cars on its head.
India's Tata Motors has turned the traditional approach to making cars on its head
The Nano story begins in the late '90s, when the Tata Group's chairman, Ratan Tata, started musing about building a micro-car that would appeal to the burgeoning Indian middle class. In a recent interview with The Economic Times, Tata says he initially considered modelling the vehicle after an Indian rickshaw or scooter. But after looking into costs and the manufacturing time, he decided to change tack and build a car. "I thought we could even have a car made from engineering plastics, but we moved away from that. As we went on, we had many early concepts that went that kind of way, till we finally decided that the market does not want a half-car. The market wants a car."
In 2006, Tata Motors set up a tiny development team of four people—it has now grown to about 500—to tease out a workable design. Ravi Kant, the managing director who oversaw the project, eventually turned to Ariba Inc. for help. The California consulting company uses "advanced sourcing technology" to minimize manufacturing costs by minutely analyzing the commodity, labour and production expenses of firms that supply parts. Singapore-based Ravi Kumaraswami, Ariba's vice-president and managing director for Asia Pacific, explains that, early on, they hit on the strategy of outsourcing the Nano's design process as a way of driving down cost.
The logic is undeniable.
In the traditional approach, the manufacturer's sourcing group uses a detailed template to elicit bids from suppliers for parts that have precise specifications. The lowest-cost bidder is awarded a two- or three-year deal, limiting the opportunities to reduce expenses. "With highly engineered components," Kumaraswami says, "70% of the cost is determined by the design." Instead, the Tata-Ariba development team laid out general goals for each part and then asked several suppliers to develop specific prototypes to meet or exceed those targets. Ariba assessed each of the competing designs and decided which bidder would walk away with a contract for the entire life of the model. "That's the fundamental shift in the whole R&D process, and therefore the production process," says Kumaraswami. "It's trying to connect with the most cost-competitive suppliers up front."
Key to Samco's success in securing a contract was its proposal to make single-segment chassis components, which met the Tata team's less-is-more philosophy. In keeping with this devolved design/sourcing strategy, the Nano assembly plant will be situated next to a 1,000-acre "supplier park" that will house dozens of parts manufacturers (although the Nano will rely on far fewer suppliers than Tata's more mainstream models). The proximity, says Tata Motors spokesperson Debasis Ray, will reduce inventory overhead and shipping costs, hardly a trivial matter in a country with a patchy, congested road system. Samco will fine tune the installation of their roll-formers on-site, and the machines will then be operated by one of the Tata Motors' suppliers.
Innosight's Johnson characterizes Tata-Ariba's strategy as nothing less than profoundly disruptive. "What Tata has done is a classic business model innovation," he says
When the Nano starts rolling off the assembly line later this year, it will sell for less than half the price of the next cheapest Indian passenger vehicle, the Suzuki-owned Maruti 800, and for slightly more than a motorcycle. Indeed, the two-wheelers that are often pressed to carry entire families, in a precarious configuration of limbs and baggage, represent the main source of competition.
For suppliers like Samco, the future looks rosy indeed—because of its contract with Tata, and also because the auto parts maker is hopeful it can market its innovations to other vehicle manufacturers. For now, Repovs is focusing on making skid-loads of prototypes and packing off his roll-forming machines to India.
Yet it already seems clear that there's going to be a need for plenty more of them. Mark Johnson estimates that Tata could eventually sell a million of them a year, a number that comes close to matching the total current annual demand for passenger vehicles among India's population of 1.1 billion people. As for the railway barons of the 19th century, and Microsoft in the 20th century, the field—correction: the road—is wide open. "They're competing against non-consumption," says Johnson. "The Indian [auto] market has a market penetration of just seven per 1,000 people, so there's a lot of non-consumption going on."
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