IT Spending By Auto-Parts Makers Expected To Increase This Year

Pressure to cut costs is driving steps to eliminate disparate legacy apps and implement companywide ERP systems.
IT spending among automotive parts manufacturers is expected to grow in 2005, particularly among companies that are implementing new enterprise-resource-planning platforms, says a recent study conducted by professional services organization Deloitte and Touche USA LLP and the Original Equipment Suppliers Association.

Auto-parts suppliers are consolidating their existing applications and moving away from legacy systems in an effort to lower maintenance costs and better respond to compliance regulations such as the Sarbanes-Oxley Act.

A relatively large number of automotive parts manufacturers still use home-grown legacy ERP applications. Many haven't taken steps to integrate their disparate applications and move to a common application platform because of ongoing cost pressures, says Jeff Glueck, principal and regional practice leader of the Great Lakes manufacturing practice of Deloitte Consulting, a subsidiary of Deloitte and Touche. But this is going to change over the next two years, he says.

In a study released this month, Deloitte and Touche and OESA surveyed 28 CIOs from original-equipment-manufacturer automotive-supplier companies in North America, Western Europe, and Japan. Of the large and small suppliers that participated, 57% have undergone mergers and acquisitions over the past two years and 50% are starting up operations in or are already operating in China. "The next step for these companies is to move either to new integrated ERP platforms or to better integrate their current platforms," Glueck says.

Because many of the larger manufacturers have acquired other companies, the average large automotive-parts supplier has at least three different ERP application systems. "That's expensive and companies are trying to drive down costs by moving to a more coherent, integrated environment," says Randall Miller, also a principal with the Great Lakes manufacturing practice of Deloitte Consulting. Automotive suppliers also are moving away from customized legacy systems that have been modified over the years in favor of more standard ERP platforms, which are upgradeable, Miller says. "With standard software, [suppliers] can take advantage of new functionality and lower their maintenance costs, which they can't do with modified software" Miller says.

Because many automotive suppliers have been under financial pressure to improve margins and drive down costs, they see investments in ERP systems as a "must have," Miller says. Additionally, suppliers are looking to implement companywide ERP systems to manage compliance with Sarbanes-Oxley, something that can be difficult to do with multiple, disparate applications, Glueck says.

More than 50% of the companies surveyed said they're consolidating their existing ERP platforms, and 25% of those companies already have selected vendors or are implementing a new ERP platform as their primary IT infrastructure. "They're almost all focused on achieving a higher level of integration," Glueck says. While ERP is increasing among all automotive suppliers, that 25% "is the group responsible for the significant increase in ERP spending and is driving up the overall IT spending average [in 2005]."

Despite the high number of companies planning to increase IT spending, the number of companies with good training programs in place to support new ERP systems was relatively low. Many of the surveyed companies also are struggling with recruiting top talent to manage those systems. "Human resources is going to have to work very closely with IT to implement these [ERP] systems and create the appropriate skill sets to support them," Glueck says."You don't want to wait until you start your implementation to recognize that you have a lack of skills."