DETROIT - Many Tier 1 and Tier 2 suppliers will begin talking to each other in a new way next January.
That is when North American automakers expect their Tier 1 suppliers to start ordering materials via computer from Tier 2 suppliers. Orders will be transmitted at least once a week, with no more ordering via telephone or fax machine.
The move is part of a larger, industrywide push to get suppliers to manage their communications and logistics electronically - a process known as electronic data interchange.
The changeover next January has had supplier representatives crowding into Automotive Industry Action Group training sessions. The industry task force, with more than 1,200 automotive company members, is the forum for standardizing the data requirements. The Big 3, the Japanese and European transplants and even heavy-truck makers are using the action group of Southfield, Mich., as their agent to bring about the change.
The technical organization tutored more than 1,300 people in training sessions this spring, said Nancy Malo, electronic data interchange program manager for the group. More workshops are planned for this summer to help suppliers set up implementation plans.
The carrot for change: a potential financial windfall.
Conclusions from a two-year test program that the group completed last year indicate that the industry can knock $1 billion a year out of its overhead if suppliers communicate by computer rather than on paper.
Bernie Sleadd, president of PML Inc. in Paris, Tenn., hailed electronic communications. His company is a Tier 1 and Tier 2 supplier of rubber parts.
'For many smaller companies, it will be a bitter pill to swallow,' said Sleadd. 'But the gains in productivity are worth it.'
PML spent $35,000 to $50,000 to set up the hardware and software to conduct business electronically. But as a result, the supplier has improved accuracy in its shipments, reduced clerical hours and reduced discrepancies between its documents and its customers'.
Malo said automakers will measure suppliers' compliance with the mandate, with the implied threat that noncompliance could mean the loss of future business.
But the Big 3 have not yet decided how they will measure compliance, Malo noted.
One of the biggest challenges suppliers face in meeting the January deadline is finding the right computer software, said Tom Hoy, the AIAG's executive director.
The electronic data interchange mandate requires that computers of Tier 1 suppliers be able to receive and integrate material orders and shipment schedules from automakers automatically.
'There aren't too many software packages out there that can handle that,' Malo said.
The cost to upgrade a supplier's computer system to meet the new requirements starts at about $4,000, Malo said. It rises, depending on how much computing capability must be added.
TOO MANY SYSTEMS
Some companies that profess to be using electronic data interchange are actually using it merely like a fax machine, Hoy said. They print out the incoming electronic data and then re-enter the information by hand into another computer system.
The problem is that every time information is handled by a person, there is another chance for errors to creep in. It also dramatically slows the progress of the information through the supply chain.
In its two-year manufacturing assembly pilot program, the action group found that it takes as long as one month for suppliers at the lowest level to get information from Tier 1, Hoy said.
'That forces those suppliers to maintain 'just in case' inventory that can be shipped right away,' he said. And in the new world of lean manufacturing, excess inventory spells excess cost.
Staff Reporter Lindsay Chappell in Nashville, Tenn., contributed to this report.