Automotive Research Finds Suppliers on Shifting Ground

University of Michigan's Office for the Study of Automotive Transportation and Oracle Reveal New Insight on Challenges Facing Automotive Industry's Top Suppliers

REDWOOD SHORES, Calif., May 13 -- A study of the Automotive Supplier industry titled, "Integration and Collaboration: Reaping Benefits from the Value Chain," was released jointly today by the University of Michigan's Office for the Study of Automotive Transportation (OSAT) and Oracle Corporation , the world's largest enterprise software company. Based on in-depth interviews with executives from 20 major suppliers and a comprehensive survey of over 100 high-ranking supplier executives, the study reveals the investment value of information technology (IT), as well as the need to prioritize internal integration, customer collaboration and supplier collaboration initiatives in three areas: Supply Chain Management, Product Design and Development, and Executive Decision Making. More importantly, the study results found that these priorities may be skewing supplier efforts in ways that may lead to short falls in overarching strategic supplier goals.

Survey findings show that the rate at which a company invests in IT will improve its ability to access, share and use external and internal information. Survey respondents who invested more than 1.5 percent of their annual revenue in IT report that their information is "moderately accessible and consolidated," while those who invest less have "somewhat" inaccessible and fragmented information.

The study makes eight recommendations for executives charged with leading their companies to better results over the next decade. Chief among those recommendations is that supplier executives must align executive strategies, personnel practices, business processes and IT to ensure the most effective integration within and collaboration across business unit organizations. Specifically, the survey urges supplier executives to integrate business operations by leveraging Internet technologies to integrate disparate systems, known as islands of excellence.

"Global competition is rampant and the pressure by OEMS on suppliers to reduce costs continues. As a result, profitability requires differentiation and a highly capable value chain and this is directly proportional to a supplier's proficiency with integration and collaboration. Without it, this game becomes more about price than value," said John McGlynn, senior director Oracle Automotive Industry. "We don't think that cost pressure is decreasing nor will price-downs disappear any time soon."

  Key findings highlighted in the study include:

  -- Islands of excellence, disparate systems or functional groups,
     constrain global suppliers from achieving economies of scale and world
     class performance.
  -- The rate of improvement of Tier 1 suppliers who expect to become
     System Integrators ESIs' (Emerging System Integrators) lags behind
     current SIs in four key areas:  Cost-Reduction Efforts, Market Share,
     On-Time Delivery, and Profit Margin. Part of this lag can be explained
     by the fact that ESIs are generally farther behind in their integration
     and collaboration efforts.
  -- Suppliers do not always see the "big picture," often failing to
     recognize the interdependence of their internal operations with those
     of their external suppliers and customers.
  -- System Integrators realize that innovation through Product Design and
     Development (PDD) provides key differentiation with their customers,
     but few have launched major collaborative initiatives with their
     suppliers.
  -- Supplier executives emphasize traditional financial metrics over
     operational metrics in evaluating internal program efforts, because
     financial metrics are profit driven and easily attainable, while
     operational metrics are process driven and more difficult to obtain.

"The results of our research do not suggest that there is a single solution for every supplier in the industry," said Mike Flynn, director of OSAT. "Rather, every supplier in the automotive industry should review this report and understand the implications of these findings for their own business."

About The Research

The research was conducted by the University of Michigan's Office for the Study of Automotive Transportation (OSAT) and Oracle Corporation, with the cooperation of the Original Equipment Supplier Association (OESA). The research included interviews with executives from 20 major suppliers and a survey of over 100 high-ranking supplier executives, including 9 of the Top 10 and 14 of the Top 20 suppliers.

About The Researchers

Mike Flynn, Ph.D. is director of the University of Michigan's Office for the Study of Automotive Transportation (OSAT). The author of numerous analyses and reports on the industry, his major specialties are industry restructuring and globalization.

Bruce Belzowski is senior research associate at the University of Michigan's Office for the Study of Automotive Transportation (OSAT). He has led numerous studies at OSAT, where his primary focus is on industry restructuring and the role of IT across the supply chain.

Maitreya Kathleen Sims is a research assistant at the University of Michigan 's Office for the Study of Automotive Transportation (OSAT). Her primary focus is on competitive challenges and industry surveys.

About OSAT

A University of Michigan research office, OSAT has been a major source of research and analysis on the automotive industry for some 25 years. For more information, visit our website: www.osat.umich.edu.

About Oracle Corporation

Oracle is the world's largest enterprise software company. For more information about Oracle, visit our Web site at www.oracle.com.

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