Supply Chain in the Fast Lane

[From iSource Business, April 2001] Nothing epitomizes the Great American Car as well as muscle cars. Look at late 1960s and early 1970s fire-breathers like the Mustang, Camaro, Chevelle and Charger and it's easy to see what the American approach to improving cars was more power. Forget evolution of manufacturing techniques. Just drop a big-block in the engine bay, slap on a four-barrel carburetor and highrise intake manifold and shoe the beast with some wide American rubber. There's your improvement.

A little unrefined, perhaps, but the funny thing was, it worked. The cars were fast (and let's face it, cool), the public bought them by the trainload, and Detroit bathed in the profits. Then reality, in the form of emissions requirements, higher gas prices and gas shortages, hit as only reality can, and the Big Three were forced to refine their offerings, first in the form of lighter, more fuel-efficient cars. From then on, refinements in the automotive industry were ratcheted up in a manner more precise than adding cubic inches.

Keep it in First Gear

The trend of slowly refining processes seems to be continuing, even when it comes to something as hyperkinetic as e-business. While enabling the myriad suppliers involved in torquing together every urban assault vehicle pushed out the factory doors might seem like something Detroit would jump at, given the potential savings, things are proceeding slowly in that area. Covisint, the online marketplace that promises to be the 800-pound steel-and-safety glass gorilla, doesn't even have a home yet. It's hard to slash expenses when you don't have a home from which to to slash.

Dennis Virag, president and managing director of the Automotive Consulting Group of Ann Arbor, Mich., says that right now the auto companies are electronically transacting Maintenance, Repair and Operations (MRO)-type items. He says, You're beginning to see e-procurement used fairly widely, especially on commodity-type products. Virag believes that online procurement will increase in the future. We think that you will see a significant amount of procurement, again of non-engineered, commodity-type products.

On the exchange front, Virag also points out that, while Covisint, and to a lesser extent FreeMarkets, are getting most of the press, there are a lot of other online supply chain enablers, and they can expect to gain traction as e-procurement in general does. Today, there is significant electronic content on the vehicle. And, although there's a lot of focus on Covisint and FreeMarkets' automotive sector, there's a lot of electronics procurement, standard electronic components, through the electronic exchange. So, it's not only the automotive exchanges that are going to experience significant volume increases. It's going to be any type of product that goes into the automobile.

Jon Ekoniak, senior research analyst at U.S. Bancorp Piper Jaffray, concurs with Virag that the auto industry is taking some supply chain baby steps, with the potential for giant steps in the future. Ekoniak says, We're already seeing implementations coming on the auction side. For example, GM has run [a small number of ] auctions using Commerce One software, and has been able to procure everything from small parts to fairly large, expensive orders.

What About the Options?

So the auto makers are seeing cost reductions, but what about the secondary benefits, like less inventory, faster cycle times and reduced stockouts? Virag says it's too soon to tell. I think the jury's still out on that. The auto industry went to lean manufacturing initiatives, like just-in-time delivery, a number of years ago. So, in terms of inventory stocking and so forth, that's been pretty well minimized. The real benefits of e-procurement are on the commodity side.