Most Tier-1 suppliers plan to cut the number of lower-tier suppliers they do business with by 21 percent within the next year, according to a study released Monday by the Center for Automotive Research and the Environmental Research Institute of Michigan.
|2001 Management Briefing Seminars index|
Study findings, presented at the 2001 Management Briefing Seminars in Traverse City, Mich., came from interviews conducted among 16 Tier-1 suppliers, representing $70.2 billion in annual sales in North America. The average Tier-1 supplier surveyed represented an average base of 1,300 lower-tier suppliers.
Nearly 80 percent of those suppliers interviewed say they expect to consolidate their supply base by at least one-fifth over the next year. Additionally, Tier-1 suppliers expect their suppliers to increase their e-business capabilities by 27 percent to 49 percent within the next three years, according to the study.
Tier-1 suppliers also say e-business expenditures will come to represent 13 percent of their capital expenditures within the next three years, up from 3 percent.
Jonathon Morelli, a researcher with ERIM's Center for Electronic Commerce, says he's not sure Tier-1 suppliers will meet their stated goal of increasing e-commerce expenditures by 10 percent within the next three years.
Still, the study speaks to Tier-1 suppliers' readiness to adopt Internet-based methods, he says.
Morelli says the major reason Tier-1 suppliers are investing so heavily in e-business — and expect their suppliers to do the same — is because e-business supports key business initiatives of original equipment makers, such as lowering car development time and order-to-delivery times.
Study respondents also cited cost reduction in their own organizations as reason for e-business growth.
Morelli says in order for these predictions to come true, "e-business must permeate automotive supply chains." He says Tier-1 suppliers believe in the potential of e-commerce but also are aware of the problems that may thwart implementation.
Among the road blocks:
Delphi Automotive System Vice President Mark Lorenz, in charge of operations and logistics, says Tier-1 suppliers already are finding ways to use the Internet to simplify distribution and procurement channels and reduce parts inventory.
Delphi, which buys parts from 5,000 suppliers worldwide, has cut in half the number of organizations and "parts handoffs" that it takes to get products to its customers. Lorenz credits the Internet as a major component of the reduction.
He says Delphi has partnered with Covisint to build a supplier network Web site. The site, hosted by Covisint, will allow Delphi to share production schedule information with its suppliers and will facilitate collaboration between product developers.
Lorenz says Delphi has conducted 100 auctions online, totaling $900 million, and has saved an estimated $120 million.