Suppliers Slow to Pull E-Business Trigger, Study Says

Suppliers who take their purchasing and product development online can cut costs and reduce their time to market by 30%, but few have managed that task so far.

That’s the conclusion of the latest “Automotive Best Practices Forum” survey conducted by Arthur Andersen in partnership with the Original Equipment Suppliers Assn. (OESA).

On average, e-procurement strategies have been only 22% implemented, with suppliers citing uncertainty over return on investment, lack of funding and their company’s resistance to change among reasons for the slow pace.

Only a small percentage --less than 10% -- report having activity with the U.S. Big Three’s Covisint exchange, Andersen says. But 54% currently are piloting or planning to implement Covisint.

Of those surveyed, 96% said they had purchased less than 5% of their total buy via e-procurement auctions during the last 12 months. The majority says savings have been less than 5%, though a small percentage says such measures have cut costs 11%-20%. Only 11% of purchases are made electronically today, but suppliers see that going to 60% within three years.

“If you’re not online, you’re not an easy supplier to do business with,” warns Andersen’s Russell Hensley.

Better supply chain management will become more critical as the industry shifts more toward build-to-order (BTO), Mr. Hensley says. So far, 37.5% of the supply base has started to experiment with BTO, the survey indicates. By 2010, 21% of new vehicles will be BTO, up from 5% today, according to Forrester Research Inc. “That means the need for more accurate, real time demand-release information,” says Mr. Hensley, who adds that today demand-release schedules are only 58% on target. “For every 100 units ordered, only 58 are needed,” he emphasizes.

Toyota Motor Corp. is the leader in BTO today, according to 41% of supplier respondents.

On the product development side, the majority of suppliers say that within three years they will rely mostly on their own corporate exchanges for trading product development data. About a third say they’ll use industry exchanges to communicate on engineering. But many are leery of using captive exchanges such as Covisint for this purpose and believe an unbiased third party, such as the Automotive Industry Action Group or the OESA should take the lead in defining data exchange standards.