| By
Martyn Chase, AMM Special Correspondent
September 12, 2001
The squeeze on capital spending, coupled with the sharp
downturn in the economy and the implosion of the dot-coms,
will slow anticipated pace of e-commerce in the auto
industry over the next year or so.
Early optimism over the potential of electronic trading
exchanges for everything from e-procurement to supply
chain management has faded and future directions look
uncertain at best. While most of the world's major automakers
are vigorously pursuing in-house networks called private
trading exchanges, plans for the industry-wide Covisint
exchange appear to have stumbled a bit out of the starting
gate, and moves by automotive suppliers into e-procurement
are lagging way behind expectations.
There are at least a couple of big trends that have
emerged over the past year or so.
First, the rise of the private trading exchange is a
major development to watch over the next year or so.
Many leading automakers--and large Tier I suppliers
as well--are putting more emphasis on their own internal
in-house networks than on industry-wide endeavors such
as Covisint. But Covisint isn't standing still by any
means. It rang up an impressive $36 billion in online
purchasing in the first six months this year, a much
higher volume than many expected.
Second, a significant number of suppliers basically
are still sitting on the sidelines and have not adopted
any plans to implement the new set of e-business tools
in their business either for procurement or supply chain
management functions.
On the supplier front, a recent survey by the Detroit
office of Arthur Anderson found that only 11 percent
of suppliers' total requirements were currently being
transacted electronically and that one of every five
suppliers basically has not made any plans to date for
entering the e-commerce arena.
That's the bad news. The good news is that this same
survey indicated that the percentage of business transacted
electronically would be soaring in the years ahead to
60 percent of all business by 2005. "It's a mixed
picture in autos," one leading e-commerce analyst
said. "I think there's still plenty of potential
there ... but it may be a case of taking a step back
before trying to take two steps forward."
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A study conducted by the University
of Michigan's Center for Automotive Research asserted
that the supplier base will continue to see a drastic
contraction--shrinking 20 percent in the next year alone.
But it also added that the survivors will be those who
are quickest to adapt to e-business tools. Today only
15 percent of suppliers require two-way e-commerce capability.
By 2004, however, that figure will jump to 77 percent,
the University of Michigan researchers forecast.
A recent report from Accenture, a consulting firm, may
have summed up the present state of play best when it
said: "The key to success in the B2B online market
is not a new business model; rather, it is old-fashioned
marketing. We mean the lost discipline of marketing--asking
customers what they want and then providing it at a
profit."
As Covisint struggled through a tough first year when
both the start-up and government anti-trust agency approval
took longer than expected, the Big Three automakers--General
Motors Corp., Ford Motor Co. and Daimler\Chrysler--all
moved quickly ahead with private trading exchanges of
their own. Ford's e-commerce efforts appear to be the
most innovative at this stage with its moves presaging
a total overhaul of its $30-billion annual procurement
business. In terms of its steel buy, Ford will likely
purchase more than $1-billion in steel this year through
a new system provided by e-Steel, a New York-based software
provider that is capable of tracking as many as 170
separate steps in the purchasing process from specs
to bids to orders to payment.
Michael Levin, president of e-Steel, sees significant
advantages coming from this new purchasing set-up. "Why
should Ford let their suppliers go out and buy hundreds
of thousands of tons of steel, process it and then sell
the components back to Ford?" he asked. Why not
instead buy the steel at the lowest possible price,
then transfer it back through the supply chain adding
value along the way?
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On one level it looks like Ford is barreling down a
separate e-commerce path of its own, bypassing Covisint
in many critical respects. While that's what it may
look like on the surface, there's more to the story.
Ford executives have kept Covisint officials informed
on what they are doing on their own. "We want to
keep them in the loop," one executive said. And
e-Steel, highly active with Ford, also is signing cooperative
agreements with Covisint that hold the potential for
future expansion as well.
Just this summer Covisint and e-Steel signed an agreement
to cooperate on marketing direct material procurement
technology to the auto industry in a deal that could
pave the way toward a broader relationship in the future.
Significantly, it's important to note that Covisint
does not plan to sell steel on its site at this time
with the exchange stating that it needs to "focus
on integrating previously committed technologies"
into its site. But it does plan to embark on a "co-marketing
effort" to encourage its clients to use the e-Steel
Supply Network Platform.
"We have a high regard for e-Steel technology and
their management team," said Kevin English, who
became the new chief executive of Covisint this spring.
"We will encourage our customers to do business
with e-Steel," he added.
"This initiative with e-Steel has all the hallmarks
of a great relationship," Levin enthused. "We
look forward to their support in providing the auto
industry with a proven solution for direct materials,"
he added.
Meanwhile, General Motors is focused more on its internal
Web links with suppliers than on Covisint. This supplier
link, called GM SupplyPower, offers real-time data on
quality shipping and manufacturing procedures. GM also
is using the Internet to better manage scrap and steel
recyclable operations, to track accounts and to process
purchase orders, Rick Wagoner, chief executive of GM
told the annual meeting of the American Iron and Steel
Institute in Washington this spring.
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There are potentially important
payoffs for suppliers, he added. "It allows for
faster problem resolution and it provides the necessary
information for pro-active planning," Wagoner asserted.
Bottom line for suppliers is this: those linked to GM
SupplyPower will be hooked into GM's vehicle development
programs much sooner, allowing the suppliers to influence
the design process from the outset.
And DaimlerChrysler is moving ahead with its FastCar
system in the production and design of its vehicles.
A new set of e-business tools means that DaimlerChrysler
suppliers can get up-to-the-minute data on inventory,
packaging, invoicing and design changes. "We are
changing paradigms, and we've cut our order response
times to between 25 percent and 50 percent," said
one DaimlerChrysler executive.
Covisint had more than its share of start-up troubles
and is losing money. But it may be beginning to rebound
from its shaky start. "Covisint is not a dot-com,"
English asserted at the University of Michigan Auto
Management converse at Traverse City, Mich. in early
August. "We are a business that will not only last
but thrive and succeed over the longer term," he
stressed.
Recent news from the industry-wide exchange looks hopeful.
In the second quarter this year, Covisint reported that
it handled 320 auctions worth $35 billion in sales.
It's important to note that the lion's share of that
business is in highly engineered parts and components,
not materials like steel or aluminum. But Covisint is
eyeing moves into direct material procurement as well,
sources said.
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