To Increase Shareholder Value, OEMs Can't Delay In Moving On Covisint, According to KPMG Study
10 January 2001
To Increase Shareholder Value, OEMs Can't Delay In Moving On Covisint, According to KPMG Study
Many Obstacles Exist in Pulling Tier 1 and Tier 2 Suppliers Into the Mix;
Economic Downturn to Put Increasing Pressure on Getting
Digital Exchange Operational
DETROIT, Jan. 10 According to the results of a global
B2B e-commerce study conducted by KPMG, the professional services firm,
suppliers believe that digital exchanges are overrated, are distrustful of the
motives of OEMs, and don't have the capital to invest in technology. Despite
these significant hurdles, the 'Big Three' automakers must persevere in
getting Covisint operational to improve shareholder value and win the
confidence of Wall Street, according to Brian Ambrose, KPMG's national
industry director of its automotive practice.
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KPMG's global study of automotive leaders from multinational OEMs and Tier
1 and Tier 2 suppliers in the United States, England, Germany and Japan, was
conducted in October and November 2000.
The following are questions tied to the study, with commentary analysis
from Brian Ambrose.
Q. Why is it important for the "Big Three" to get Covisint operational?
Ambrose comment: "To increase shareholder value. The efficiency benefits
are immense, in cutting the waste out of administrative, transactional and
logistical processes. The digital exchange would also foster a free flow of
information and ideas in real time and we should see significant benefits in
car production and engineering."
Q. How does this impact the consumer?
Ambrose comment: "Consumers are a lot smarter today in terms of car buying
because manufacturers and dealers costs are known to them. The consumer is
king in the information age. This places increasing demands on the industry
for service, better product, meaning fewer recalls, and lower prices. The
consumer benefits as e-procurement streamlines workflow and expedites
production by nurturing more direct engineering relationships."
Q. Automotive executives see digital exchanges as e-procurement and feel
that the impact of digital exchanges are overstated. Do you agree?
Ambrose comment: "There are some fairly aggressive estimated cost
reductions coming from the exchanges. The automotive industry has not
embraced the digital future as much as other industries. In terms of
e-business progress, KPMG found the automotive industry ranking last against
six other traditional industries. The largest manufacturers have not clearly
defined a cohesive strategy for executing Web-based procurement. The message
from Wall Street is loud and clear: embrace the digital age."
Q. The study found suppliers distrustful of OEMs with digital exchanges,
in that they will know what parts cost. In effect, costs will not be hidden
any longer. Should this be a concern?
Ambrose Comment: "There's no doubt that the cost of parts will be
transparent in a digital exchange, enabling the OEMs to negotiate much more
advantageous pricing with their suppliers. That's a given. This can cause a
lot of pain in the supplier ranks but ultimately lead to healthier, more
efficient companies, which will lead to a healthier more robust industry."
Q. The study found Tier 1 suppliers caught in the middle of a supply
chain squeeze. They are reporting that the OEMs are pressuring them to adopt
digital technology but their own suppliers are ill-equipped to make the
digital transformation. What can they do about it?
Ambrose comment: "Keep an eye on the long term vision of building a
stronger company. Not only do Tier 1s have to make an investment in
technology but there will either be super Tier 2's or need to acquire Tier 2's
who cannot keep up. We are going to see tremendous consolidation as a result,
which will lead to larger and stronger Tier 1 players. We've seen some
consolidation but the technology question will spur additional acquisitions.
It's just around the corner."
Q. In the study, respondents said that cost savings were grossly
exaggerated and didn't see real progress for five years. Do you agree with
that timetable?
Ambrose comment: "No. We are facing a difficult economic environment
with much uncertainty. Some are forecasting a recession. In the industry
there is going to be a close watch on expenditures, especially costly
technology. But having said that, business drives technology. And it will be
the smart company that puts the right dollars in all the right places.
Spending on the digital front will be necessary, even though painful in an
economic downturn because the industry needs to take drastic measures on all
fronts. Stress will increase throughout the supply chain when the industry can
least afford it. The only good is the outcome -- an industry moving headlong
into the digital age. The automotive industry can't afford to wait. "
KPMG LLP, the accounting, tax and consulting firm, is the link between
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http://www.kpmgconsulting.com or reached through the firm's site.