Although I linked to the new Category Chatter podcasts last week, I really wanted to dive into the Tata Motors story (mp3) with Ravi Kumaraswami and Jason Busch a bit further. The process by which Tata shifted from a commercial vehicle manufacturer that was hemorrhaging money to a low price consumer car-maker that showcases how a company can leverage its suppliers to drive product innovations and reduce costs.

After a rough fiscal year in 2001, Tata Motors’ CEO determined that cutting costs was the only way they could survive. Doesn’t sound like a ground breaking revelation, but the result was quite revolutionary for the company because they took an entirely new approach to their supplier relationships and those changes ultimately gave them the capability to deliver a $2,500 car.

Rather than they 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. In other words, Tata described the “goal” they wanted to achieve with a certain part and the suppliers took that and ran with it.

For example, Ravi described how Tata Motors approached the issue of windshield wipers. Typically that automaker would hand down their specific tech specs and go from there. But Tata’s RFX described the goal - cleaning the windshield - and let the suppliers come to them with ideas on how to achieve that goal (1 wiper or 2?) as well as the materials used. Although windshield wipers sound like a simple thing that couldn’t possibly drive a car’s price down significantly, when you add up the savings across hundreds of parts, you begin to see how this approach pays off.

Ravi also stated that 75% of a component’s cost is determined at the design phase. So, when you consider the flexibility from Tata Motors’ combined with the collective brainpower of their potential suppliers’ engineers (who are obviously the true experts in the parts they are hoping to supply), the creativity and innovation can produce some revolutionary designs. In this case, we’re primarily talking about cutting costs. But imagine if this model is adopted across other price-points, products or industries. It unlocks a tremendous amount of costs savings and product development.

Justin Fogarty is Managing Editor of Supply Excellence. For any questions or feedback on the blog or its contributors, Justin can be reached at jfogarty[at]ariba.com.