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Lessons of the Tata Nano and Rethinking Big Three Supply Chains

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Jessie Scanlon penned a rather interesting article in BusinessWeek last week (What Can Tata’s Nano Teach Detroit?) which many supply chain professionals associated with the Detroit Big Three automakers should read.  Beyond the notions of the introduction of the Nano in India, there is the challenge of what can Detroit learn from the Tata Nano?

As the author points out: ” Tata didn’t set the price of the Nano by calculating the cost of production and then adding to margin.  Rather it set $2500 as the price that it thought customers could pay and then worked back, with the help of partners willing to take on a challenge, to build a $2500 car that would reward all involved with a small profit“.  The article further makes a case that the Big Three management are disconnected from the needs of consumers, as well as means for “rethinking the supply chain’.

I tend to agree.  Because of its low price point, the Nano ships as a kit to a local facility, where it is assembled, avoiding the need for building and operating large final assembly operations This distribution model is very similar to how foreign manufacturers have introduced their new models to the Chinese market, by shipping kits to their foreign subsidiaries. The article rightfully points out that if the Big Three wants to expand its market to emerging markets such as India and China, as well as protecting the U.S. domestic market, there are implications for rethinking the supply chain and final distribution model.

Some specific challenges come to my mind:

Why is it that the Chevrolet Volt, GM’s planned extended range electric vehicle targeted to retail close to $40,000?  Is this about targeting what the consumer wants to pay, and what the supply chain can deliver? 

Why is that Ford cannot come up with a more affordable, fuel efficient and green alternative to its workhorse Crown Victoria? Every major U.S. city has fleets of Crown Vic taxis and police vehicles, yet the market lacks affordable alternatives in fuel efficiency.

Why is it that so many Tier One suppliers are at risk of financial collapse?  Is this a failure in supplier collaboration or rethinking the supply chain?

It continues to amaze me that auto dealerships throughout the U.S. continue to be inventory stocking points for finished models. Have any other viable distribution alternatives been explored and piloted for smarter inventory management?

Perhaps we do have a management problem.  Perhaps the Big Three is too invested in past thinking about consumer needs, sales, distribution and supply chain structure.

You are welcomed to share your views in the Comments associated with this posting.

 Bob Ferrari

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  1. Paul McDaniel says:

    Outdated customer hook (thus distribution model): if we get them into the showroom AND into “their” vehicle, we can sell it to them even if they were just looking. New hook, give me a great website and allow me to order the car I want. Sure I need a test drive of a similar car, but then I can wait 2-3 weeks for “my” car the way I want it. And, fewer customers end up with a bad taste in their mouth if they got sold into a decision instead of made the decision. The whole supply chain gets efficient if build to order gets closer to reality. Maybe I get a cheaper car because no one is financing a long cash-to-cash cycle!

  2. Paul- you provided some astute observations regarding a changed consumer and a changed distribution model.

    I would also value the web research and comparison experience, a no-pressure test drive, and the ability to custom order my car with my customized options. These options could well be installed a a local or regional assembly center, similar to Toyota’s import models years ago.

    As Paul points out, the “hooks” are changing.

    Bob Ferrari

  3. Himraj Dutta says:

    One more attribute is the faster decision making by the Tata management which enabled them to roll out the car on due date. When the team realized that the plant in Singhur will not be operational due to problems created by Local politicians, they relocated the operations and that of their vendors to a different location. So other than price they had also done a backward integration in terms of Time and had also implemented a quicker decision making philosophy. The Big three can also learn this from Tata Motors – Quicker Decisions in difficult times.