William G. Diehl

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William G. Diehl

• President, CEO Global Automotive Practice Lead
• BBK

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A Comprehensive Approach to a Healthy Supply Base

• William G. Diehl, BBK

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CA debacle will cost automakers 665 million
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• Experience is the best teacher but this is not a
  tuition cost you want to pay.

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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

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Lets Talk About Financials
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Lets Talk About Financials

• Gross margin down from 24.7 in 1997 to 17.7 in
  2006

Source Capital IQ
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Lets Talk About Financials

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

Source Capital IQ
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Lets Talk About Financials

• Based on a BBK Ratings analysis,
  22 of the supply base is currently
  distressed
• Distress defined as C, D or F

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Public vs. Private

• 46 of privately held suppliers are in distress
• More than double the percentage of publicly
  traded suppliers

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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

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How to Implement a Proactive Financial Process
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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

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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
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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

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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

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In Summary

• Theres a staggering number of suppliers facing
  financial distress
• Operational review alone doesnt necessarily
  reveal all
• Knowing the complete picture of your suppliers
  gives you the ability to take action sooner and
  make more favorable decisions

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Conclusion
BEST INDUSTRY PRACTICE
A Comprehensive, Proactive
Operational And Financial
Supplier Risk Management
Process
William G. Diehl