US supplier Dana Corp. and five other auto-parts makers, including Valeo, are looking at ways of putting their combined $106 billion of annual purchasing power to work with an Internet-based venture.
Dana is in talks with Valeo, Eaton Corp., Motorola Inc., TRW Inc. and Delphi Automotive Systems about ways they can manage their supply chain to create speedier communications, better prices and faster delivery.
The giant parts makers want to develop a system that will complement the purchasing exchange being developed by General Motors, Ford Motor Co. and DaimlerChrysler. A website is one option, but details of the venture are still being discussed.
Gary Corrigan, a Dana spokesman, said Dana 'is working with other suppliers to find the most beneficial way of getting our products to our customers in the quickest time and the lowest cost way.'
Analysts say Dana and its partners are following the automakers' lead. The car companies in February established a common exchange to minimize the cost and difficulty of linking their many thousands of suppliers.
Now the Tier 1 suppliers want to link up with their Tier 2 parts makers and suppliers from other industries to enjoy similar benefits, say analysts. Business-to-business trade exchanges have been announced in the financial services, chemical and other industries.
Corrigan said he expects the consortium's exchange will complement the one being assembled by automakers. 'The suppliers don't expect to compete with the automakers' exchange,' he said.
Dana, of Toledo, Ohio, USA, estimates that it can obtain annual savings of $250 million from the $8 billion it spends each year with more than 86,000 suppliers that provide everything from paper to steel.
A supplier exchange is expected to sharply reduce transaction costs after all suppliers are electronically linked. It could reduce inventory costs by refining just-in-time inventory procedures. And Dana expects it will lead to fewer suppliers, but with longer contracts, Corrigan said.
Analyst Stephen Reitman of Merrill Lynch in London said Valeo is already linked electronically to many of its customers through Intranets, internal networks that use Internet technologies. But these are costly to set up and maintain because they often have to cope with different operating systems.
Use of a common language on the Internet will speed the workflow, particularly for digital mock-ups, allowing the virtual integration of suppliers with the project teams, said Reitman.
Valeo, for example, operates 20 production lines around the world building radiators. Linking each plant electronically provides the opportunity to obtain scale advantages in purchasing.
Valeo began online bidding in January. The company estimates that 50 percent of its $5 billion purchasing budget can be conducted in this way over time. Savings are expected to reach 5 percent per year.
Dana's Corrigan said he expects the exchange will initially focus on maintenance, repair and operations goods such as computers, office and cleaning goods. Analysts say the supplier exchange could later focus on more sophisticated vehicle parts.