Executives throughout the automotive supplier industry gathered here today to discuss how Covisint, the industry’s planned trading exchange, and other emerging industry trade exchanges will affect their businesses, and how to prepare for the inevitable changes to existing business models.
Kevin Prouty, senior analyst for the automotive industry at AMR Research, reviewed the impact of e-business strategies on automation, plant processes, and plant-supplier relationships, and presented an overview of the strategic impact of Covisint, including its potential for success, possibility of failure, and its current state.
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“While new technology will certainly have an impact, it’s important to keep in mind that e-business is just business,” said Prouty. “The critical factor for success in this changing market is still relationships-between OEMs, suppliers, and end-customers. Covisint has been a struggle from day one due to its complexity, and the politics, speed, and cultural issues involved. I foresee that it will play a role in the industry, but I do not believe it will be the all-encompassing solution to supply chain management and collaboration as originally intended.”
Nevertheless, Prouty said that suppliers must be able to quickly respond to business drivers changing the industry. “Cost, recall and warranty pressures are accelerating, channel conflict is increasing, we’re seeing consolidation in modular construction and among suppliers, and lead-times and design cycles are shortening. Flexibility and speed are essential for New Economy suppliers.”
Nick Johnson, vice president of Thomas Group, corporate host of the roundtable, agreed with Prouty’s assessment. “The new digital supply chains bring dramatic increases in efficiency and productivity across the entire supply chain. However, in order to truly operate at Internet speed, it is important to have a strategy that is aligned with the business processes, technology and people within the organization, as well as an implementation plan in place. It is the execution of the strategy that will determine future success or failure.”
According to Prouty, the real potential for Covisint lies in cost savings from improvements to demand management, quality management and indirect procurement. The exchange could bring about improved demand data to reduce supply chain inventory, reduce the cost of quality management and warranty support, and control purchasing cost and spending. The resulting impact on OEMs would be accelerated manufacturing outsourcing, more consumer-direct exposure, better control of information, accelerated Deliver-to-Order (DTO) and design cycles.
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By GlobalData“Unfortunately, this also gives OEMs another tool to pressure suppliers,” said Prouty. “Ultimately, suppliers are left with three options: allow OEMs to dictate the terms, set up an individual e-business strategy and execute it for short-term ROI, or collaborate with other Tier 1 suppliers to complement the super-exchange.”
