Automakers and suppliers agree that the procurement process is in the midst of its greatest shake-up since the industry's earliest days. Age-old issues such as quality, price and cost are sharing the spotlight with relatively new concerns like consolidation, globalization and systems integration, making the game more interesting than ever.

Striving to unravel the mysteries of the ever-changing supply situation, Ward's Auto World's 18th annual supplier survey asks vendors, among other things, to define the new role of automotive suppliers in this global market. Responses range from references to partnerships, systems, full-service and black boxes to cries of "profits are a thing of the past" and "do everything they want or die."

The emphasis on being a full-system supplier and a systems integrator also shows up on other survey queries. Forty percent of supplier participants say automaker requirements for system capability is the most powerful driving force of the consolidation trend. Nearly half (49%) say globalization is the reason for suppliers joining forces. Another 21% think the cause is maintaining corporate growth.

Asked to rate the importance of supplier qualities -- after cost -- automaker participants deem systems capability most critical, followed by global capacity and then expertise in a single component area. This squares with the results of a survey recently released by A.T. Kearney Inc. and the University of Michigan's Office for the Study of Automotive Transportation that shows the industry is well on its way to replacing its traditional first tier with systems integrators (see Sourcing Scramble story, p.33).

A full 80% of the suppliers say their customers are demanding that they offer complete modules and systems. Almost all (90%) of the OEM participants confirm that their companies are requiring their supply base to deliver more systems or modules. More than three-fourths (76%) of the suppliers say their companies are involved in more systems work than a year ago. Almost 30% say the new systems work is in vehicle interiors, 25% in chassis and 23% say it's under hood.

"There is much pressure to help design complete systems, but also pricing pressure to buy low-cost components," says an engineer from General Motors Corp.'s Delphi Automotive Systems subsidiary in describing the sometimes divergent goals of the current supply environment.

As more engineering responsibility for systems transfers from automaker to supplier, considerable growing pains are being felt on both sides of the counter.

One OEM participant admits that it's difficult for automakers to relinquish control. "We continue to have in-house personnel monitor the system," he says. "We're unwilling to give suppliers complete control. It still results in bureaucratic drag." Another says work will be shifted from the OEM to the supplier, but new efficiencies in product development will not result.

Despite the assumption that Chrysler Corp. leads the league in systems contacts, 26% of survey participants say GM awards the most systems contracts. Ford Motor Co. and Chrysler are tied for a very close second at 25% each. In the same query last year, Ford and Chrysler tied at 28.3%, while GM was the choice of 18.3%. Regardless of which automaker comes out on top, the results from the last two years clearly show the industry is rapidly moving toward systems-based procurement.

In addition to design and engineering responsibility, suppliers are starting to pick up the tab for some costs traditionally borne by automakers. Some 70%-plus of suppliers say the transfer of financial burden is in design and engineering. More than half (53%) say the costs are coming in testing while 41% say the increased costs come from prototypes.

Automaker engineers responding to a similar question assess the transfer of cost like this: 86% say it's added in design and engineering, 66% CAD/CAE, 63% in testing and 61% prototypes.

Not surprisingly, considering the price pressure in the industry, 61% of suppliers say they are losing money on components they supply to automakers. Almost 35% of those who are say they are losing money maintain that the situation is serious enough to consider leaving that part of the business. Another 34% say they'll stick it out.

One supplier executive says his company is willing to take short-term losses on new technology if there are long-term commitments from the OEMs for future volume increases. But, counters an engineer from Borg-Warner Automotive, "The loss is only on minor things. The gains outweigh the losses."

Most automaker respondents (66%) say they'd be concerned if suppliers didn't make money on their projects. Quite obviously they prefer financially healthy suppliers who are able to invest in new technology.

Speaking of price cuts (as the suppliers refer to them) or cost reductions (as the automakers prefer to call them), most suppliers report that customers are asking for adjustments of 1% to 5% each year. They say they achieve their goals by eliminating waste in the manufacturing process (40%), optimizing the efficiency of the manufacturing process (26%) and sacrificing profit margins (19%).

"Profit margins get hit first, then you go after cost savings," says a participant from an electronics supplier, relating a business theory probably not embraced by his management.

Almost 70% of the automakers participating in the WAW survey say suppliers are having difficulty meeting their quality and delivery requirements. That's an improvement over last year's survey, in which 88% of the OEMs said suppliers were having these problems.

On the other hand, only 27% of the vendors admit to difficulties meeting OEM quality and delivery requirements. One of the explanations for the problem, given by a supplier executive, is that the requirements are "always changing, getting tougher and tougher all the time, making them continually more difficult to achieve."

A few automaker respondents offer advice for suppliers striving to meet automaker quality requirements: "Continuous improvement, employee empowerment, together with appropriate education and skill development," says one OEM engineer.

"Quality should be built into suppliers' process and systems. Quality is truly everybody's job, not just the quality people," says a Ford engineer. Says another Ford participant: "A common-sense approach to engineering and manufacturing (is needed, as is reducing) redundancy in processes and staying focused."

One step in improving supplier quality is QS-9000 certification. Nearly three-quarters (73%) of suppliers say QS-9000 is a worthwhile procedure. Half say they are requiring suppliers to get certified as well.

"(QS-9000) provides a channel for self-inspection and evaluation," says one supplier manufacturing engineer. "It forces us to look and re-look at our processes and documentation," adds a supplier vice president.

Not all comments are favorable. "QS-9000 is a fraud. I wish the industry would realize this," says one supplier participant. "It's only paperwork," says another. "Too-specific interpretation of objectives is resulting in a paperwork and procedural nightmare," says yet another.

A caveat from the quality gurus: QS-9000 must be embraced and enacted from top management all the way down to the janitorial staff if it is to make a difference.

Among the survey's other findings:

* 67% of suppliers say that despite union pressure, automaker outsourcing will increase. They say it will increase by 10% to 20%. Some 30% say out-sourcing will stay at its current levels. Nearly half (45%) of automaker respondents agree that outsourcing will increase. More than half (55%) say it will stay at current levels.

* Once again, Chrysler is the automaker that suppliers prefer to do business with (29%), GM takes second with 27% and Ford pulls in 25%.