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Automotive Industry

The Conflicts Of E-Bidding - Brief Article

Automotive Industries, April, 2000 by Ron Harbour

Supplier consolidation will work against the online purchasing process.

Ford Motor Co. expects 70 to 80 percent of all of its purchasing transactions to take place on the World Wide Web within the next two years. Ford also has joined General Motors and DaimlerChrysler to form the world's largest online purchasing company, and they're asking other automotive companies to join them.

On an even bigger scale, more and more Internet auction sites are being set up to help manufacturers reduce costs in what is estimated to be a $5 trillion market for industrial parts.

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Ready or not suppliers better be prepared to work in this new e-business environment, or they are not likely to last long into the 21st century. But the question I have to ask is, "Just exactly how is this all going to work?"

It's easy to see why automotive companies want to use the Internet -- as a way to save money on purchased parts. Estimates say companies can save 15 percent or more by purchasing parts and materials via online auctions. After all, the moment the bidding starts, the No. 1 factor becomes price.

But at the other end of the e-mail are suppliers that use product differentiation to separate themselves from their competitors. Product differentiation works against the automakers' strategy of making each part a commodity, where the only difference between any component, material or system is price. And suppliers will not want to give up what they believe is proprietary information in order to turn one of their products into a commodity item.

Supplier consolidation, which seems to be supported by the auto manufacturers, also will work against the online purchasing process. Fewer companies will mean fewer bids, which may result in higher prices. Already there are reports that one group of suppliers refused to submit bids on a product until the automaker significantly raised its minimum "target" for bids.

Supplier capability is another issue that may pose problems. While only "approved" suppliers will be given access to the bidding process, who will know if a supplier has the capacity to meet the demand? Who will know if it can produce products at acceptable quality levels and make deliveries according to just-in-time schedules? Suppliers, no doubt, will be bidding on many jobs at the same time, and not even they will know which bids will be accepted, or what demands their companies may face in the future.

Another area of conflict for the brave new world of e-bidding is modularization. Not long ago, many industry experts were calling modularization the "new revolution" in manufacturing. A module is a collection of different parts that are physically integrated. Each part requires its own design, engineering and testing. Modules allow automakers to install many different parts and components that are pre-assembled as one complete unit.

Modularization will be hard to implement under any bidding plan. Tier 1 suppliers will create different modules whenever they assemble different parts and components produced by many different Tier 2, 3 and 4 suppliers. Who will manage the process if the auctioning process filters down below the Tier 1 supplier level?

Like many other latest-and-greatest auto industry innovations, the pendulum is likely to swing too far when it comes to business-to-business trade exchanges. Some companies that win contracts because of their low bids, will fail because they will not have the resources, capital or capabilities to meet theft customers' demands.

There also may be an adjustment period, as automakers learn which parts and components can and cannot be put up for bid. For example, tires, nuts, bolts, fasteners and belts seem to be ideal items to be bid-out on the Web, while some other products, particularly modular components, seem less likely to move into the world of mass customization.

How will it all play out? It's really too early to say. But automotive suppliers better be ready to go wherever the Internet, and their customers, are pre

Ron Harbour is president of Harbour and Assoc., manufacturing consultants in Troy, Mich.

Automotive Industry

The Conflicts Of E-Bidding - Brief Article

Automotive Industries, April, 2000 by Ron Harbour

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