The automotive industry is moving its entire supply chain online at a faster rate than many other industries. The movement has been driven, in part, by the rapid adoption and growth of the Covisint online supplier exchange. But Covisint isn't the only game in town and at least one major carmaker is out to prove that it can go it alone.

The original concept for Covisint was established in early 2000 by Detroit's Big Three automakers under the temporary moniker of NewCo. According to Covisint literature, the idea brought each company's individual e-business initiatives together "to avoid the burdens suppliers would endure if asked to interact with redundant proprietary systems." Despite some initial skepticism from industry experts, in April 2000 Japanese automaker Nissan and French firm Renault signed on. A year later, Covisint named Kevin English its first permanent CEO and in May 2001 Peugeot-Citroen joined. Before long, it looked like the whole automotive industry would be on one platform.

"The value of having all the OEMs on one platform is realized most by the suppliers," says Covisint's vice president of Communications Dan Jankowski. "Most of the suppliers work with more than one of the major automakers. It makes no sense for them to have to work in a totally different fashion from one OEM to another. That is one of the beauties of Covisint. If you're a supplier, you don't have to go through the capital investment to ensure that you have a different system for each of the different organizations. Doing so would be inherently costly and inefficient."

One of Covisint's founding members, DaimlerChrysler, has been pleasantly surprised with the amount of business it has moved onto Covisint and advanced capabilities of the exchange to date. H.J. Carleton, director of e-extended enterprise at DaimlerChrysler, recalls one of the events that won over a lot of Covisint converts.

"We did an online bid event (OBE) last year for [automotive] body parts," Carleton says. "There were 1,200 parts involved and 80 combinations of those 1,200 parts completed in four days. Try doing that manually."

But not every automotive OEM has felt the need to join Covisint. Japanese firms Honda and Toyota have yet to sign on. And on the European front, The Volkswagen Group, made up of Volkswagen, Audi, Bentley/Rolls Royce, Lamborghini and others, was concerned that working within Covisint would put too much focus on the standards and requirements for the exchange and detract from its own specific sourcing and supplier requirements. With its own suppliers and processes in mind, VW developed its VWgroupsupply.com online buying marketplace on a similar model as Covisint, but specifically geared toward its suppliers. Even though much of the automotive industry—including fellow German carmaker Daimler—was moving to the Covisint marketplace, VW felt its buying processes were unique enough and its purchasing power strong enough to carry its own platform.

"We thought it would be better to do it with our suppliers specifically than if we did it with a big group of companies that have different needs and requirements for their suppliers," says Meike-Uta Hansen, director of B2B Internet negotiations at Volkswagen AG. VW is strongly process-driven and convinced that a private marketplace helps it get its processes integrated faster. Hansen says creating its own private exchange and tools allows VW to have more control in its dealing with suppliers, with fewer approval channels and conflicts in setting up auctions. Security was also another factor in VW's decision to fly solo.

The first layer of the VW portal provides public information on VW and its buying and logistics operations. Deeper in the site, authorized buyers and suppliers are connected to eRFP/RFQ tools, online auctions, catalogs, and other online negotiation tools. The eRFQ tool is developed internally by VW, while the online reverse auction capability comes from eBreviate. Also available through the site is the eCap capacity management application from i2 Technologies, which lets suppliers know in real time what VW's needs and expected capacities are for production.

"The eCap application helps us identify potential bottlenecks," says Hansen. "We started doing that with parts that are difficult to manage where we saw bottlenecks in the past. The delivery volumes for up to 26 weeks in advance can be planned by the suppliers involved and a preview of up to 24 months can be examined. This lets our suppliers plan and operate their own production capacities more smoothly using the most up-to-date data and production planning figures." Another tool on the site provides online texts of standards and guidelines for the manufacture of production materials and a supplier database is also maintained on the site.

Currently, VW puts about 80% of its total annual spend through VWgroupsupply.com for a total of $44.6 billion. This includes a mix of direct and indirect materials. The majority of the indirect buying is done through online catalogs set up on the site using Ariba. Hansen says the early results are very promising in the indirect areas. As of the end of 2001, more than 600 employees in the Volkswagen Group were buying 360,000 articles from more than 200 suppliers through the online catalogs. The average throughput time for these purchases has been reduced by 95% through the use of the catalogs.

The simple fact is Covisint and VWgroupsupply.com have more in common than they have differences. Neither is promoting a target for monetary savings through online negotiations, but focusing on process improvements.

"We always say that our buyers did a very good job before we went to this system, so the savings are not the expected result. But the online tools help them streamline the process," says Hansen. "Buyers now can choose if they want to use the marketplace or use the traditional negotiation method. Our goals are focused on the improvement and the acceleration of procurement, logistics and supply chain integration."

Both VW and DaimlerChrysler say the online buying tools have not radically changed the supply base at VW, but now potential suppliers can get in touch with VW and become suppliers more easily. Another advantage in using an online exchange is getting suppliers involved in the design process at an earlier stage. One of VW's goals for 2002 is to integrate more engineering and design activities through use of its online marketplace. DaimlerChrysler says it is targeting similar goals with Covisint. Carleton says the engineering and design operations will benefit from the increased collaboration brought about by moving supplier dealings online. DaimlerChrysler is learning much more about its lower-tier suppliers and how they can improve the overall end product.

"If an engineer is making a change in the wheel suspension system of the car, the suppliers working in that environment will know about that change at the same time he's making it because they work in a collaboration. Then they can see if there are conflicts in design, if there is impact on their parts, if there is something they could do to better compensate for the issue."

Both Covisint and VW have taken the same approach to recruiting lower-tier suppliers for their exchanges. To date, both have focused their efforts on the tier one suppliers and requested that in the near future (likely 2002) these suppliers recruit their suppliers to participate in the given online exchange and so on down the line. Jankowski says the Covisint sales model was originally a direct sales model aimed at tier one suppliers. The lower tier suppliers will require a more indirect model that involves online self-registration to accommodate the greater number of companies involved.

From Covisint's view, the major drawback to VW not participating in Covisint is twofold. First, there is an added cost and burden on VW to coordinate online activities. "If I was running VW, I would want to look at what is my core competency," says Jankowski. "Should I be building an e-commerce-based trading exchange or should my people be focused on building great cars and trucks?"

Secondly, Jankowski feels the added burden on suppliers to support the VW exchange could be prohibitive, especially to smaller suppliers already struggling in a slow market. "They have to make sure they have people trained and working in both environments. They have a cost on both and that adds up."

Carleton says the evolution of Covisint was a natural progression of what was already happening in online interaction between OEMs and suppliers. The major automakers had started to develop their own platforms and the idea of them all being on a common platform simply made sense from the supplier's perspective, provided it could be done in a secure, safe environment.

"I think it would have evolved naturally," says Carleton. "Most companies were playing around with online procurement a long time ago. We were doing a lot of online transactions years ago. We started sending out RFQs and terms and conditions online. We had 90% of our direct suppliers connected with EDI. If it hadn't been Covisint, it would have been another exchange. Maybe the companies would have done their own things for a while, but that would have been horrible, especially for suppliers. I think because there was not anyone focused on the automotive industry specifically, that was what created it. We all got together and said why don't we just do one for the industry?"

Both VW's marketplace and Covisint offer similar supplier negotiation capabilities and tools. And even within Covisint, OEMs like Ford are developing their own private trading networks, similar to VW's portal. Ford has asked Covisint to host the next generation of its Ford Supplier Network, an existing network that Ford was developing prior to and alongside Covisint. This will let a registered supplier go into the Ford-specific applications that are behind Ford's firewalls or go to the Covisint applications using a single secure sign-on in Covisint. Jankowski says the goal is to have 100,000 individual users hooked into the Ford Supplier Network through Covisint.

On the supplier side, Delphi Automotive is also using Covisint to host its supplier portal. Jankowski says more of these private portals are expected in the coming months as OEMs decide their individual strategies.

What lies beyond Covisint and the online buying boom? That road is not yet mapped out, and the widespread benefits of online exchanges are still being explored. "Cycle time reductions are eliminating a lot of the paperwork and analysis is going to be done online," says Carleton. "The increased transparency between ourselves and our suppliers and the collaboration will help us find out where the efficiencies are. Everybody will have access to the same information at the same time. These will be addressed by these technologies."