Andersen Forum on Virtual Supplier Networks: The Carmakers' Answer to Being Capacity Fat and Profit Thin?

Webcast of Briefing to be Stored July 20, 2001 at http://www.clickondetroit.com/money

    DETROIT, July 17 The bad news: The world's leading
carmakers find themselves capacity fat and profit thin.  In a world of complex
products, intricate supply chains, and long design cycles, suppliers struggle
to reduce costs and respond to unstable demand.  The good news: Virtual
Supplier Networks (VSNs) could help to alleviate some of these points of pain.
A VSN can help to optimize the productivity and profitability of three
critical functions: procurement, supply chain management, and product
development.
    In Andersen's June 2001 Automotive Best Practices Forum, the firm surveyed
over 35 automotive suppliers on the subject of VSN, revealed many of the
industry's fears and misconceptions, and discovered how the industry is
preparing to proceed and hopefully succeed.

    Who benefits from a VSN?
    A VSN works for sellers as well as buyers.  How?  "In an exchange, buyers
aggregate demand and ask for a discounted price based on the higher volume,"
says Randy Miller, Andersen's Global Automotive Partner, "The greater the
number of buyers, the greater their clout."  This may sound bad for sellers
but suppliers benefit in several ways: transaction costs are lower; demand is
more reliable; and the odds of selling slow-moving inventory are better.  As
Miller notes, "Everyone gains from the smoother and faster movement of
products, services, and information in the supply chain."
    Auctions, an element of a VSN, have focused on indirect material.  Russell
Hensley, Senior Manager of Andersen's Automotive Competency Center, suggests
that, "To move beyond these commodity products/services, auctions will
have to take into account such value-added variables as delivery options,
payment terms, differentiated product features, warranty clauses, and
quality."
    So, even if auctions seem price-driven now, they won't be in the future.
As one supplier participating in the Andersen survey said: "If the OEMs want
to beat us up on price, they don't need an auction to do it.  They do it well
enough right now just by picking up the telephone.  But at least in an
auction, they have to do it with 'real' competitive bids.  And we all get to
see the other prices."

    Preparing for success: what should a supplier do right now?
    A little due diligence is in order: suppliers should begin with an
understanding of their risks.  "The security of proprietary data within an
exchange is one concern, as is ownership of data mining capabilities," says
Hensley.  He continues that "Trust is obviously important; some suppliers may
feel that an industry exchange led by large and powerful players might be
suspect, while others are confident that the real benefits will significantly
outweigh imagined inequities."
    The erosion of any competitive advantage based on technology is also a
risk; the pace of innovation can quickly level the playing field.  Hensley
suggests, "Perhaps the greatest risk to any supplier evaluating its options
within a new industry model is complacency.  Some executives, who think that
technology is the whole story, fail to provide the necessary leadership to
change the company's business processes and culture."  VSN's need to be
leveraged to not only increase operational effectiveness but also to drive
cultural transformation.
    Miller summarizes: "To create a winning business model, a supplier should:
1) find ways to create new value (perhaps through a product/service offering
or a strategic partnership); 2) decide which exchanges and participants have a
value proposition that matches the supplier's goals; and 3) avoid partnering
with an exchange or another company that lacks vision or the technology to
take away the real pain in the industry."

    About the Automotive Best Practices Forum
    In January 1997, Andersen established the Automotive Best Practices Forum.
Its mission is to bring together automotive professionals to share knowledge,
evaluate best practices and understand the changing dynamics of the automotive
industry.  Andersen and the Original Equipment Suppliers Association (OESA)
have teamed together to jointly sponsor the Automotive Best Practices Forum
and explore and understand the changing dynamics in the automotive industry.
This partnership gives automotive suppliers, Andersen and OESA the opportunity
to create new benchmarks for the automotive industry.  Participants include
executives from over 120 automotive companies.

    About Andersen
    Andersen is a global leader in professional services.  It provides
integrated solutions that draw on diverse and deep competencies in consulting,
assurance, tax, corporate finance, and in some countries, legal services.
Andersen employs 85,000 people in 84 countries.  Andersen is frequently rated
among the best places to work by leading publications around the world.  It is
also consistently ranked first in client satisfaction in independent surveys.
Andersen has enjoyed uninterrupted growth since its founding in 1913.  Its
2000 revenues totaled US$8.4 billion.  Learn more at http://www.andersen.com .