E-business: the new game in town
E-business strategies
Despite the automotive industry's comparatively slow progress, it has made significant strides throughout the past year as e-business has unarguably become an integral element in the business and engineering strategies of many automakers and suppliers. A survey of automotive/manufacturing companies, conducted by KPMG and the Economist Intelligence Unit in June and July 2000, determined their views on the importance of various channels for procurement (Figure 1). The results showed that online exchanges, both industry-specific and multi-industry (as well as corporate extranets/intranets), would become more critical for procurement in the near future. For many automotive companies, the future is now.
 Figure 1. A survey on the importance of various online channels for procurement. Click to enlarge |
Since October, DaimlerChrysler has held more than 27 online bidding events on the Covisint exchange for a cost savings of more than 17% on almost 500 parts. "These online bidding events have demonstrated that quantifiable benefits can be gained through online material procurement processes," said Gary C. Valade, Executive Vice President, Global Procurement & Supply. "We have made extraordinary progress with the implementation of our e-business strategy in procurement and supply this year and fully expect to continue this positive trend in 2001." The company plans to conduct about 100,000 transactions online in 2001.
Several automakers have opted to bypass Covisint to pursue their own exchanges. For example, Volkswagen AG set up its own private exchange, which went live in September with the help of technology partners i2 Technologies, Ariba, and IBM. With the exchange, the company intends to increase the efficiency in its global supply chain and improve its process flow. Thus far, the exchange has been limited to the automaker and its suppliers; however, Jens Neumann, a member of VW's board of management, said in a statement at its inception that "the marketplace is open to everyone."
Likewise, BMW decided to initiate its own purchasing exchange, with the use of Ariba's B2B e-commerce platform, so it could keep its options open. A case study presented by KPMG and the Economist Intelligence Unit stated that BMW "has decided not to (join Covisint), preferring to remain flexible so that it can buy from marketplaces on an ad hoc basis." The study also reported that the automaker planned to purchase between 20-25% of its supplies online by 2001.
Some automakers and suppliers are using marketplaces that serve other industries as well. For example, yet2.com, the first online cross-industry exchange for buying and selling technology, has approximately 25% of all global R&D in the automotive industry available on its exchange, according to the company. Last June, Ford, Porsche, Toyota, Bosch, Delphi, and Denso committed to listing their combined $15 billion in R&D spending on the exchange. Ben du Pont, President of yet2.com, said that the exchange allows access to technologies outside of the automotive industry that might otherwise go unknown and, at the same time, exposes automotive technologies to other industries; streamlines the technology transfer process by matching buyers with sellers; and increases companies' R&D efficiencies. "Our exchange allows automotive companies to discover new revenue streams for their technologies that are outside of their own industry and in places where they probably wouldn't have looked," du Pont said. "It also puts automotive engineers in the loop by giving them access to typically never-seen-before information in places they may never have looked." He also noted that 85% of the people looking at automotive technologies on the exchange are from outside the industry.
Since 1998, Delphi has also conducted in excess of $800 million in transactions during 77 online auctions with FreeMarkets, Inc., a Pittsburgh, PA-based company that has been providing online auctions for various industries since 1995. The transactions yielded more than $114 million in identified savings, according to the supplier. Delphi has also participated in two online auctions on Covisint and anticipates continued procurement savings by using the exchange. Delphi's e-business strategy extends beyond just online auctions, however. Richard Radecki, Corporate Director of e-Business at Delphi, noted that its main areas of focus include supply chain management, buy/sell transactions and exchanges, supplier management, customer relationship management, and collaborative product development.
While Delphi is very active in using and promoting e-business tools, its approach is not to blindly leap in head first. "We are trying to gain knowledge and understand how a more collaborative hub-and-spoke type of communication - as opposed to sequential - affects our business processes and relationships," Radecki said. "We want to understand exactly what these tools offer and how they bring value to our current process, not just complicate it or lay on top of it. And as more solutions become available and more refined, we will consistently look at different areas in which we can progress." He also mentioned that the process of understanding and implementing e-business tools, not only for Delphi but for the automotive industry in general, is incremental. "There's not a silver bullet here; it's not 'shoot one shot and you're there.' It's an evolution."
Another company emphasizing e-business and Internet connectivity as part of its NexCommerce initiatives is Johnson Controls, Inc. (JCI), a supplier of seating and interior systems and batteries. Among several new tools used to support its e-commerce strategy is the i-Supply Service provided by SupplySolution, a real-time visualization tool that creates a transparent supply chain by allowing suppliers to access their customers' production, inventory, delivery, and other critical data via the Internet. The tool "will allow a Tier 3 to see right through the demand to what we're building for the OEM in our JIT plants," said Michael Suman, Group Vice President for Marketing and e-Commerce, JCI. "Tools like this will allow everyone to see exactly what is going on in real time and will be able to get the right amount of information there, the right amount of product there, at the right time." Suman added that this could result "in a 10, 20, sometimes even 30% stock inventory carrying cost reduction. So what this means is that if one of our customers decides to build an extra leather seat, immediately a cow in Texas gets nervous."
JCI has also developed three portals - Customer, Supplier, and Employee - to help with its e-commerce initiatives. According to Suman, these portals will give those groups "access to common databases and new e-business tools that will accelerate value creation throughout the entire vehicle development and supply process. This approach supports our B2B - or Back2Basics - philosophy."
The Internet also plays a significant role in Dana Corp.'s business plans. The supplier's e-business strategies include the implementation of a Web-enabled e-purchasing and supply chain management system, which will enable more efficient management of its $8 billion in annual worldwide purchases. Other anticipated benefits include reduced transaction expenses, consolidated information on supplier performance, and reduced inventory requirements. Joe Magliochetti, Dana's Chairman and CEO, said, "We have developed some aggressive goals for the next four years, including an efficient consolidation of our key suppliers and significant cumulative savings in procurement cost and transaction expenses. We expect our global e-commerce initiatives will enable Dana to utilize the Internet to gain a competitive advantage in the automotive supplier industry."
