TRAVERSE CITY, MICH. - More than three-quarters of the auto industry's Tier 1 suppliers plan to cut their own list of suppliers in the next year, with an average of one out of every five companies taking a hit, according to a new survey.
The Environmental Research Institute of Michigan's Center for Automotive Research of Ann Arbor, Mich., said its survey of 16 companies indicates 77 percent of them will cut their supplier lists by an average of 21 percent.
``If you look around a room with four of your competitors, just realize that one of you might not be here in 12 months,'' Jonathan Morell, principal member of the technical staff for ERIM's Center for Electronic Commerce, said during an Aug. 6 presentation at the group's Management Briefing Seminars in Traverse City.
The survey, sponsored by Southfield, Mich.-based computer consulting firm SupplySolution, focused on the impact of e-business on the supply chain.
The ability to use and apply Internet and computer-based business practices will play a part - much more so than it does today. Delphi Automotive Systems Corp., the world's biggest automotive supplier, announced during the event it will require its suppliers to use Covisint LLC, the e-business platform backed by the North American auto manufacturers.
Companies surveyed said they expect 76 percent of their suppliers to handle electronic requests for bids within two years. Today, they expect only a quarter of them to do so. In addition, 49 percent expect that they will be able to observe a supplier's inventory of production schedules remotely. None said they expect that today from their suppliers.
``It is pretty clear that the movement [toward e-business] is rolling along and is going to have to roll further down the tiers,'' Morell said.
And they anticipate that both the costs and rewards of doing electronic business will climb. The firms surveyed now spend an average of 3 percent of their total expenditures on e-business. Within the next two to three years, they anticipate that will climb to 13 percent, Morell said.
However, they expect to see the return on that investment to increase to 16-19 percent during that same time, compared with the current rate of 3-7 percent.
``There is a tremendous amount of money being invested, and there is a tremendous expectation as well,'' he said.
The demand to accelerate computer-savvy operations need not automatically translate to big expenses for small suppliers, though, said Don Woerner, senior vice president of sales and business development for SupplySolution.
``They do not always require [the supplier] to change anything. They do not always require them to buy anything,'' Woerner said.
Before signing on to a service that will cost thousands of dollars every year just to maintain, suppliers first should determine what they have and ask their customers what they demand.
``Ask your customers what technology they are using,'' Woerner said. ``Ask them for a list of referrals.''
When it is done right, e-business can pay off for both the supplier and the customer, by helping the smaller operation shave its costs.
All the e-business buzz is not easy for most small suppliers to understand, and it's a frightening concept for firms more tuned toward cycle times than bandwidth.
``We were scared to death when we first heard about it,'' said James Essad, president of Modern Plastics Technology LLC of Port Huron, Mich. ``All of a sudden, the Tier 2 is responsible for all of these things.''
The injection molder of under-the-hood components opted for a contract with SupplySolution, paying it a fee to serve as an intermediary for information going to and from its customers. The system, Essad said, meant the company did not have to invest in hardware itself but instead piggybacked onto the consultant's technology.
But he noted that it will not be that easy for every supplier in the chain. It all depends, Essad said, on whether Tier 1 companies making e-business demands are working with their producers or just passing on costs and requirements.
``This has to be a true partnership,'' he said. ``A trust must be built between the Tier 1s and the Tier 2s that they are investing in something that will help everyone.
``It all depends on how complicated people want to make it.''