Having the tools to conduct e-business will become increasingly important in determining which lower-tier suppliers are retained in a consolidated industry, according to a study of "E-readiness in the automotive supply chain.

Within two or three years, having the tools and capability will be a key factor in attracting work from a higher tier, says Chris Moritz,president and chief executive officer of SupplySolution, Inc., which sponsored the study conducted by the University of Michigan's Center for Automotive Research.

And that will be important with 77% of tier 1s saying they will reduce their number of suppliers within the next 12 months, creating a 21% reduction in the overall supply chain. They are convinced e-business will reduce costs across the chain, says Mr. > Moritz, which translates into selection of suppliers able to do so.

While only 15% of tier 1s say they look for two-way e-business capability in their suppliers today, that figure is projected to grow to 77% within three years. The big suppliers are also expected to increase e-business expenditures from 3% of capital spending today to 13% in the next couple years, says Mr. Moritz.

They expect three-quarters of suppliers will bid electronically, transfer CAD files, make engineering changes, compared to one-quarter doing so online today. To make it work, companies must not hastily adopt stand-alone tools, but look at the impact of their choices on the rest of the chain and leverage shared technology, says Mr. Moritz.

The reality is suppliers are going out of business faster than ever and while the carmakers have $100 billion in the bank, the Tier 1s are $100 billion in debt, says Mr. Moritz.