The mice that roared

Vehicle suppliers are used to doing things the Big Three's way. On e-commerce, however, they said no way.

Surprise: the automakers actually listen to their suppliers' concerns. In the biggest man-bites-dog story in recent memory, the Big Three car companies dropped their plans to achieve world dominance via separate trade exchanges and came together to collaborate on a single platform. The reason? Vehicle industry suppliers cried out at the folly of implementing and supporting multiple disparate systems.

"We listened to our suppliers, and this is the outcome," says Peter Weiss, project manager of e-extended enterprise for DaimlerChrysler. "There's been a history of the suppliers dancing to the OEMs' tune. But we want to build true partnerships with our suppliers," adds Mark Duhaime, director of program management for Ford at its Dearborn (US) plant. "This is walking the talk, basically. If we're telling the supply base that this is good for them, we can't give them a model that drives inefficiencies."

As in any industry, the vehicle OEMs set the pace for their suppliers. In the 1980s, the Big Three decreed that their suppliers would have to conduct transactions over electronic data interchange (EDI). For the companies that made mirrors, mufflers and mud flaps, there were upfront investments to be made, business processes to adjust and new technology to learn. The suppliers did it all and moved on. And when the OEMs demanded ever-greater price reductions, the suppliers complied with that too, never knowing where tomorrow's price cuts would come from.

Although they won't have to contend with multiple exchanges, suppliers still worry that the new e-marketplaces will turn out to be just a fancy new way to beat them up on price. The detailed transaction data gleaned from suppliers buying their raw materials through the sites and selling their own wares to Ford, GM and DaimlerChrysler has the potential to give the automakers greater insight than ever into supplier cost structures. This could lead to much greater pressure to demand price cuts. Suppliers would be well within their rights to be sceptical.

Notwithstanding the Big Three's turnabout on the exchange, "there's not a lot of two-way communication there," says Bob Ferrari, senior analyst for supply chain management at manufacturing industry analyst AMR Research.

Join the feast - or become dinner

Suppliers still question whether the cost savings vehicle execs are talking about will get swept away in the next round of price cuts. A manager at a Big Three steel supplier (who requested anonymity) is nervous, but unlike most of his fellow suppliers, he's jumping in feet first. Although he wonders if he'll ever see a penny of cost savings, his company has volunteered to be one of the first users of the exchange. "We don't have a clue what this thing is going to mean, but we figure the longer we wait to find out, the worse it will be. We want to get in there and try to steer this thing to our advantage," he says.

Being proactive should pay off for suppliers, believes The Goldman Sachs Group senior research analyst Gary Lapidus. "The suppliers are already on the hook to deliver price reductions - that's just a fact of life," he says. "At least [the exchange] might give them a tool to take out costs so that they can deliver lower prices without further pinching margins - that lemon has been squeezed."

A 30-year industry veteran, the manager at the steel producer worries that if price becomes king on the exchanges, other important supplier traits such as execution, reliability and knowledge - all the things he's worked to build into his relationship with the automakers for the last 30 years - will fall by the wayside. He'd rather work on ways to shore up the relationships now than later.

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