Cost saving goes deeper than we imagine

I recently bumped into a Project Manager of Strategic sourcing at BMW. The person was responsible for sourcing from India. While the sourcing from India is in the nascent stages only, BMW is gung-ho (isn't everyone?) about India. And to think of it, they have already taken the first few steps towards their ultimate goal.

BMW currently assembles the 3-Series and the 5-Series at their Chennai plant in India. Here assembling is more of an illusion as the process involves tightening the last few nuts and bolts on the cars and doing a final inspection.

Or so I thought!

BMW sources a couple of components for the 3-Series (E60) model from Indian suppliers. The biggest surprise is the seats for the E60, which come from the Hanil Lear plant in Chennai. It would have taken all the astuteness and convincing power of Lear India's top brass to convince BMW to source seats from Lear India, even though it's all of six carsets a day.

The other significant component being sourced locally is the plastic trim for door panels, which comes from Tata Johnson Controls.

Not surprising, Lear and Johnson Controls supply the same components to the E60 in Germany.

However, here localization is as much an illusion as assembly plant is. Most of the components that go into the sophisticated seats coming out from Hanil Lear are imported. Lear's job is mostly all about final assembly. Same for Tata Johnson Controls.

And yet, it makes sense as the cost saving in the assembly itself amounts to a significant savings on an annual basis. Assembling a seat is fairly labour intensive and that itself is self explanatory. Add to this the additional benefit of having a dependable starting point in terms of vendor development and then chipping away to carve out more suppliers.

It's not about low cost manufacturing of Laptops; it's about assembling the power cords at competent prices.

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