William G. DiehlPresident, CEO & Global Automotive Practice LeadBBK

A N I N T E R N A T I O N A L B U S I N E S S A D V I S O R Y F I R M

A Comprehensive Approach to a Healthy Supply Base

William G. Diehl, BBK

C&A debacle will cost automakers $665 million

• Experience is the best teacher but this is not a tuition cost you want to pay.

Heading Off Future Distress

• Many OEs and Tier 1s are carefully analyzing supplier operations

• Often the same proactive approach for the financials is lacking or overlooked– Result can be costly

• Most effective when a comprehensive proactive process includes operational and financial reviews

A N I N T E R N A T I O N A L B U S I N E S S A D V I S O R Y F I R M

Let’s Talk About Financials

Let’s Talk About Financials• Gross margin down from 24.7% in 1997 to

17.7% in 2006

0%

5%

10%

15%

20%

25%

30%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: Capital IQ

Let’s Talk About Financials

• Total debt has increased nearly 75%– Accelerated between 2005 and 2006

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: Capital IQ

Let’s Talk About Financials

• Based on a BBK Ratings analysis, 22% of the supply base is currently distressed– Distress defined as

“C,” “D” or “F”

F

Public vs. Private

• 46% of privately held suppliers are in distress– More than double

the percentage of publicly traded suppliers

What Does this Mean for You?

• Means that you must play close attention to and actively monitor operational and financial performance– Not doing so will be a significant and

costly disruption of your supply chain

64 SUPPLIER BANKRUPTCIES SINCE 2000

A N I N T E R N A T I O N A L B U S I N E S S A D V I S O R Y F I R M

How to Implement a Proactive Financial Process

Financial Proactive Process

• Gather financial data on all suppliers – Easier said than done for

private companies

• Monitoring private companies– Access to Data,

Confidentiality and Cost

Financial Proactive Process

• Benefits from financial monitoring– Trends show developing trouble – Minimizes your risk– Allows time to determine next steps– Ultimately saves you money

DEVELOP THE PROCESS

GATHER THE DATA

STAY TRUE TO THE PROCESS

Financial Proactive Process

• Key reasons for financial monitoring– Time is your ally if you use it wisely and

understand the problem– There are serious limitations to just

conducting an operational review– The entrepreneurial mindset and entry of

new owners means major problems can be overlooked and/or misunderstood

Drive for Partnership

• With a comprehensive approach, OEs and Tier 1s can work more cooperatively to keep the supply chain strong– Requires close working

relationship between customer and supplier

In Summary

• There’s a staggering number of suppliers facing financial distress

• Operational review alone doesn’t necessarily reveal all

• Knowing the complete picture of your suppliers gives you the ability to take action sooner and make more favorable decisions

Conclusion

A Comprehensive, Proactive Operational And Financial Supplier Risk Management Process

William G. Diehl

“BEST INDUSTRY PRACTICE”