What Will it Take for Renault/Nissan to Beat the Tata Nano on Price?
There's been much ado in the international automotive press the past couple of days about Renault/Nissan's plan to collaborate with an Indian motorcycle OEM to "launch an ultra low-cost car in India in 2012 that will cost less than Tata Motor's Nano". According to the above-linked Reuter's article, "the design, manufacturing and sourcing for the car would be done by Bajaj, with Renault and Nissan handling marketing in India and overseas". But what will it take from a design, sourcing and production standpoint for the Nissan JV to best Tata, which currently delivers a car that costs less than trendy Italian scooters (and some of my wife's handbag/wardrobe combinations)? I'd argue five key things:
1) An unprecedented level of supplier collaboration in the design phase. As I previously quoted another expert about the Nano, "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". Nissan will need to learn from Tata's previous experience in this regard, driving collaboration vs. just competition with its supply base.
2) Creativity and a willingness to flaunt norms. In a past column about Tata's efforts in this area, I quoted the NYT by noting that " 'to save $10, Tata engineers redesigned the suspension to eliminate actuators in the headlights, the levelers that adjust the angle of the beam depending on how the car is loaded.' And in 'lieu of the solid steel beam that typically connects steering wheels to axles, one supplier, Sona Koyo Steering Systems, used a hollow tube ... Tata [also] chose wheel bearings that are strong enough to drive the car up to 45 miles an hour, but they will wear quickly above that speed, reducing the car's life span.' " In other words, Nissan will need to toss away convention when it comes to many if not all of the key components and assemblies that will ultimately make their way into production vehicles.
3) Close linkages between supply management and supply chain management. To further engineer cost out of the production process before it works its way in, Nissan and its JV partners will need to work very closely with suppliers to maximize their use of lean throughout every stage of the supply chain (from raw material inventory to WIP to finished parts). While a lean environment with more frequent deliveries from suppliers may drive up unit cost, it will ultimately result in a lower total cost if managed correctly.
4) Reducing their suppliers' risk to enable them to sharpen their pencils as much as possible. For example, by taking commodity price risk (e.g., resin, copper, steel) out of the equation for its suppliers by acting as an aggregator or simply pegging commodity prices as underlying contract elements to local indices, Nissan will enable its suppliers to get as aggressive as possible on pricing.
5) A commitment to continued cost reduction without damaging supplier relationships. To maintain (or even lower) price points in the future, Nissan's partners will need to continually find ways to engage their supply base in cost take-out, allowing all parties to share in the ideas and savings. While these efforts might certainly take the form of lean supplier development and related programs, they will also need to focus on driving continuous innovation in everything from the manufacturing and supply chain mundane (e.g., production and logistics) to the exciting (part materials substitution and redesign).
Will Nissan and its partners be able to pull off the feat of a car that bests the Nano's price tag? It's a hugely ambitious goal. Still, by having the good fortune of being able to take advantage of lessons learned from others in the low-cost automotive equation, they've got a fighting shot. But it will certainly challenge their R&D, procurement and supply chain operations to achieve breakthrough results to pull it off.
- Jason Busch
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1. Start with sub-assemblies and any major components there. Any part / sub-assembly that costs more than (say) $ 10 would be a good candidate for a serious look for their costs. Because costs will roll up from lowest point on the bill of materials
2. Within each part / sub-assembly there would be a good need for value analysis and checking for any feasible alternatives. The example you have quoted here is an ideal case of applying open web structures philosophy for designing axles and shafts. We all learn these in our engineering and then miss on applying such proven techniques.
3. Next level of analysis will be on basis of broad categories. Materials, labor and energy are major heads that will deserve look in that order.
4. Fortunately Bajaj (the Indian motorcycle partner) has a good reputation in market for being a fair customer (as well as manufacturer of good products). Unlike some other major Indian Auto OEMs, Bajaj has always had a good philosophy of ensuring that each supplier would have a decent share of business and economy of scale. They would not allow a new supplier to get in if it would mean that existing and new suppliers would not have a decent scale of operation. Hence they are more likely to get wholehearted cooperation from suppliers as well.
5. Lastly they would look at pooling and optimizing transport and other costs so as to achieve economies of scale in transport and logistics.
6. All said and done there would still be risks. Nissan / Renault would plan to market the car worldwide. In that sense, a 45 MPH speed limit would not really work. Hence in quite a few cases, the bar would be higher. Current Nano product is a good and safe product. It has apparently been cleared in impact tests as well. However, liabilities and risks in international markets would considerably be higher.
7. For this purpose and for gaining better collaboration, it would be best for these companies to line up the partners in a Revenue Share Partner (RSP) model that GE has perfected for some of the components in particularly their Aircraft Engines. This would allow the parts collaborators to share risks and rewards. They would also be much more encouraged to contribute with more innovation and value add.
8. One last items is a good sign for the effort. Tata's promise is to supply first 100,000 vehicles with INR 100,000/- price. In today's dollar value it works out to about US $ 2200. Taxes and other components of on road price are extra. After this quantity the price is expected go up. Quantum of this increase? I have no clue. But I would guess it would be about 20% or so. That would put Tata Nano price tag @ about US $ 2700 or so. That would be a decent price tag to aim for. And still be a winner in the race to lowest price.