e-Biz Tough But Essential in Auto Supply Chain

Suppliers embrace technology benefits while citing continuing obstacles in industry-wide adoption

Detroit  September 5, 2002  High costs and conflicting demands from customers and suppliers continue to stymie the e-business efforts of mid-level suppliers in the automotive supply chain, but these lower-tier companies still see considerable value and ongoing emphasis on e-business within their own trading groups and throughout the industry, according to a new study.

The study, authored by the Center for Automotive Research (CAR) at Altarum and sponsored by automotive e-business software provider SupplySolution, provides a glimpse into the lower tier automotive suppliers' assessment of e-business both up and down the supply chain.

The research indicated that the key barriers to e-business for these companies continue to be the significant costs associated with implementing and executing on an e-business strategy, as well as conflicting demands put forward by customers and suppliers within and outside of the automotive industry.

But the research, conducted for the second year running, shows some former barriers have diminished in the suppliers' minds. These include hesitation before the unknown  respondents were less leery of the changes that a move into e-commerce would entail for their business  and the lack of supporting applications, as the respondents showed greater awareness of the number of software solutions available within the industry.

The responding companies indicated that e-business will continue to be a critical capability for suppliers at all levels of the automotive supply. The most important areas where suppliers believe e-business will help achieve specific business objectives include the ability to increase revenue through better customer service and the ability to reduce costs through better inventory management.

The study, titled "Just How Wired Is the Supplier Sector: The Middle View Up and Down the Supply Chain," elicited responses as to how e-business is conducted today and how it will be conducted in the future by the lower tiers of the automotive supply community. This research report is second in a series intended to investigate the e-readiness of the automotive supply chain. Last year, CAR issued a report, also sponsored by SupplySolution, which provided insight on the "e-readiness" of the top-tier automotive suppliers.

The research showed that e-business capability plays a role in supplier selection and that companies are implementing e-business as part of long-term efforts to reduce their supply bases. "This movement showed up dramatically in the 2001 research and continues to manifest itself today," said Jonny Morell, senior research analyst for the Center for Automotive Research.

"This year's respondents were asked if their automotive customers plan to reduce suppliers in the next 12 to 24 months, and whether they themselves plan such reductions," Morell continued. "Eight-one percent of respondents believe that their customers will reduce their supply base, while 50 percent plan to do so themselves. Also notable is the fact that the respondents indicated that they will use the capability to engage in e-business as a key factor in supplier selection."

These findings are in line with the findings generated in the 2001 research program. The research, which elicited responses from tier one automotive suppliers, found that 77 percent planned to reduce their supply base within the same timeframe. A key factor in determining which companies will remain competitive, said the tier-one suppliers, was the ability to conduct e-business.

Initial findings of this program were announced earlier this month at the annual Management Briefing Seminars in Traverse City, Mich. Key points revealed at that time included:

" 27.1 percent of suppliers said that e-business enabled demand planning and management is "required for success" in today's automotive supply chain. That number almost doubles to 47 percent for those who expect it to be required for success in the next two to three years.

" 18.9 percent of suppliers characterized e-procurement applications as being required for success today, but 39.3 expected procurement to be required for success within two to three years. But design-related applications will not have as high a growth and adoption rate, the research indicated.

" Respondents expected a small increase in information technology spending over the next two to three years.

More than 160 supplier representatives responded to the Web-based research survey, more than triple the number originally expected to participate. Eighty percent of respondents were from suppliers based in the United States, more than half had annual revenues under $100 million and 12.7 percent had revenues over $1 billion.

"This particular group of automotive suppliers possesses a significant amount of insight into the current and predicted trends relating to the auto industry as a whole," said Lee Grubb, SupplySolution's general manager and chief financial officer. "This research takes a current pulse rate of this powerful and important group, and offers clear insight into what are likely to be the driving issues over the next few years. These findings also speak to the areas that both technology providers and automotive companies need to refine to make e-commerce more beneficial to all players within the automotive supply chain."