The Auction Obsession

Automotive Manufacturing & Production, May, 2000 by Mitchell Fleischer

Everyone's jumping on the e-commerce bandwagon. GM has its e-GM initiative; Ford and DaimlerChrysler each have their own. They're all joining together to create an industry portal for auctions and other purchasing activities. Other industries are doing the same; I read recently of industry-level portals for the aerospace, farm implement, drug and other industries. As a member of the "Center for Electronic Commerce" I certainly applaud these efforts. But, as with a great many other e-commerce efforts, the "e" has to fit within a much larger scheme of good "commerce."

For example, GM is apparently proposing to develop a system in which customers will order a custom configured car on the web and will take delivery within eight days. I think this is a great idea--it takes advantage of the potential of the web to connect with customers and give them a better product at a better price. And, it's more realistic than the notion that was floating around a few years ago for a three-day car. But as a recent graphic in the Detroit News suggested, it will require an "integrated seamless supply chain building cars and trucks to customer demand." And that's the catch. Not only is GM (and Ford, and DaimlerChrysler) missing such a supply chain, many other events seem to be moving them in the wrong direction from getting one.

One function of the industry-level portals is to conduct auctions and to move many parts of the procurement process to the web. Many suppliers are concerned that this could result in a turn away from close partnering relationships with suppliers and toward another round of mindless squeezing in which the automakers are so focused on piece price that they lose sight of the need to take advantage of the knowledge contained within the suppliers. As with many forms of "automation" there is often a tendency to "let the computer do it" for things that appear easy, but in fact require the development of close relationships of trust between groups of people.

As an example, consider a part as simple as a fuel filter. A fuel filter is a custom-designed part for any given fuel system. Of course, the design can be put on the web, and suppliers asked to bid on it. Sounds great, and in theory it should permit more suppliers to bid on the work. In fact, such an anonymous bidding process is likely to be focused on taking the low bid. In all too many cases, the low bidder is someone who doesn't really understand the problems likely to be confronted in working with the customer to tweak the design over time or the often unstated requirements that somehow couldn't be put on the product model. The result may be supplier-requested engineering changes, additional charges from the supplier, and difficult communication resulting in delays and poor quality.

Even for relatively simple parts like fuel filters, a high level of communication is often required, and the earlier in the process this takes place the better. This communication is not likely to be enhanced by a web-bidding system. Indeed, I would argue that a web bidding system is of little value for parts and systems that require any significant degree of supplier involvement in the design. It may be fine for true commodity parts (steel, nuts and bolts and the like) but for little else. As we know well, most of the cost of any automotive system is determined in the early design stages. Hence, that's where the greatest savings can also be found. The auction systems currently being discussed seem to be looking for savings among the relatively low value-added items. Sure, there's money to be saved there--but it's not the big money, and it's not going to lead to a seamless supply chain.

The web can be a useful tool for collaboration during the development process, but that does not seem to be the current focus. Without an extraordinarily high level of collaboration with suppliers, GM's vision for an eight-day car cannot be fulfilled. The industry needs to get over its obsession with auctions and start working on using the web to help foster strong relationships with its suppliers. That's where the real money is, and that's where the eight-day car can be found.