Luring the big fish: Automaking's biggest supplier exchange morphs itself from an auction house into the hub of the industry's sourcing transactions - Supplier Business - Global online business-to-business, supplier exchange - Internet/Web/Online Service Information

Automotive Industries, Feb, 2002 by Andrea Wielgat

In early 2000, General Motors Corp., Ford Motor Go. and DaimlerChrysler AG formed a global business-to-business, Internet-based supplier exchange that was supposed to change the world. Covisint, as it was ultimately named, promised to cut costs and time with a goal of integration, collaboration and communication through online auctions. It was open to automakers and suppliers around the globe; everyone was encouraged to join

Since that time, Covisint has grown to include 11 automakers. There are also more than 5,000 suppliers using the exchange, with 2,000 generating revenue. Having reached this critical mass, Covisint is in the process of defining and improving how it can best serve its members. But even as it continues to sell its attributes to investors and new prospects, many of the world's automakers and suppliers have taken a wait-and-see approach.

Some companies have even started their own exchanges.

"There are a lot of options out there," says John Hoffecker, vice president, global automotive practice leader, AT Kearney. "Everybody's taking it a bit differently. Some companies are choosing to do it in and of themselves, others are looking to go into a consortium like Covisint."

"Covisint's perspective is unique in the industry," explains Kevin English, Covisint chief executive and president, "We don't see things only as an OEM does -- nor as only a supplier does. We see what the entire industry sees."

English acknowledges that Covisint is primarily known for its auctions, which have suppliers reverse bidding on components for automakers (see sidebar, p.38). But he says Covisint is now taking a step away from being an auction house. In fact, auctions will be significantly lower than 50 percent of revenue in the future.

"We want to really look at what a sourcing specialist does in a major company today and how can we make that process more effective," adds Mark Duhaime, vice president global product management for Covisint. And to implement that goal, Duhaime says the exchange now offers a broad range of tools organized into "Solution Suites" that extend far beyond its auction activity.

"Covisint is trying a bunch of different things. It's not just a procurement niche," says Kevin Prouty, research director, auto strategies, at AMR Research, a Boston, Mass.-based research company specializing in business application and technology research. "They are being a development hub. They are trying to be a supply chain executive hub. They are trying to be really the hub of the transaction processes in the automotive industry."

English also indicates that Covisint is trying to be the standard setter in the industry. But, he admits this will be difficult and costly if other automakers continue to set-up and operate their own exchanges. Germany's Volkswagen AG and BMW AG, for example, decided against Covisint in favor of creating their own e-procurement sites.

"The BMW and Volkswagen (theory) is more of a 'because they're doing it we're not doing it,'" Prouty says. Although clearly, VW's and BMW's goals for their private procurement sites contrast sharply with Covisint's attempt to be the hub of transaction processes in the automotive industry. The German automakers are not working to help the industry or set standards but rather to make themselves more efficient.

BMW'S e-procurement site is still in its infancy although it's moving steadily forward. The VW site however, has already conducted more than 600 auctions with a focus that goes beyond procurement, addressing the entire sourcing process.

VW tapped eBreviate, an EDS company, to install its auction software on VW's global auction site serving the automaker's companies in the Czech Republic, Germany, Spain, Mexico and Brazil. Last year, the automaker's site had 4,000 suppliers participate in 600 auctions, which Prouty describes as part of a lengthy and complicated sourcing process. He says that by automating parts of it, VW gets better visibility, which helps save money.

eBreviate, says President and Co-Founder Tom Slaight, has made it as easy as possible for global VW suppliers to conduct business around the world. But he cautions that having Covisint and the VW and BMW sites plus other supplier sites may cause technical difficulties for suppliers trying to switch between the many different systems.

One way to solve this problem is for VW and BMW to use pieces of Covisint, which experts say may eventually happen. But for now these automakers will continue to focus on developing their own sites.

For several Asian automakers Covisint's value is unclear and they are sitting back and watching what's happening. These automakers have long-term, strong relationships with their suppliers and view these relationships as a competitive advantage. Toyota Motor Co., Honda Motor Co. Ltd. and other Asian firms have yet to join a consortium or set up a formal site of their own. And Covisint must prove to them that it won't change the relationship with suppliers but will just be a tool to enhance it.