Ekoniak, however, believes that the most impressive results might come from this area of secondary benefits. The auto industry has been hammering down its parts suppliers for years, trying to get the costs as low as possible. So it's not that they're necessarily going to be able to buy a part more cheaply through increased competition, because they've already been very competitive and they've had these shakeouts within their suppliers. The benefits really come from being able to reduce the time it takes to make a car, to actually procure the products, so there's less inventory in the system.
Elaborating, Ekoniak says, It used to take about four years to actually design a car. Now they're down to around two years, and they're looking to get that down to around six months. So, they could change to [suit] consumers' demands much more quickly, and they don't get stuck with an outdated product line where they have to put incentives into place, such as no interest rate on your financing, or dealer rebates. If they can target their customers better and know exactly what their customers need, then there's less of a price reduction to get stuff out the door.
Rakesh Batra, an analyst with the e-business consulting firm Syncata, which has done extensive work with Honda, believes that the future of the enabled supply chain will indeed include more consumer involvement. He says, Most of the auto industry typically works on a push basis. You just produce the cars and you send them out to the dealers and hopefully they'll sell.
But enablement will change that, according to Batra. We're seeing a shift from production-driven environments, which have been based more on asset utilization, capacity utilization, to what's more of a supply chain environment. Which doesn't ignore capacity and asset utilization, but says, Hey, there's a bigger piece over here. There are efficiencies in inventory, there are efficiencies by collaboration, so let's take this whole manufacturing setup or manufacturing process to the next level of capability.'
And now to Covisint. When an exchange has the backing of Ford, GM and Chrysler, it's going to get a lot more press than one bankrolled by a garden variety billionaire venture capitalist. There is obviously a lot of economic weight to be thrown around here, but it remains to be seen if it can be thrown around gracefully. The Big Three haven't exactly been fishing buddies, historically, and an e-link between them isn't likely to change things drastically.
Virag puts the necessity of cooperation this way: There are not only three big gorillas GM, Ford and DaimlerChrysler but you have several others who are joining the parade. So how do you get five gorillas to dance together, when each has preferred internal systems? GM works very closely with Commerce One, Ford works with Oracle, DaimlerChrysler is in bed with SAP. How do you resolve whose engines you're going to use to drive Covisint? Those are some serious issues.
There is historical precedence for this pessimism. Virag points out the previous e-procurement initiatives have died on the automotive vine. If you look at some of the collaborative initiatives the auto industry attempted in the past, one of them that comes to mind is ANX. That's the auto industry Web-based initiative that was centered in AIAG, the Automotive Industry Action Group. That never really materialized like the auto companies had anticipated and hoped, and actually it was sold to SAIC. Could Covisint be an inter-manufacturer Edsel-in-the-making? Virag says that's not an unrealistic assumption.
The Key's in the Ignition
Ekoniak says Covisint does have its problems, but the behemoth is not totally clueless. They need to put all their management team in place, and then start moving forward. But at least they know who they're going to be working with, and they're starting to evaluate them more closely.
To be fair, not all this dithering can be laid at the feet of the Big Three. Virag explains that suppliers from the tall to the small have to be involved to make Covisint viable, and actually accomplishing that hook-up is no mean feat. In order for an enabled supply chain to function properly, you need buy-in from suppliers at all levels of the supply chain. That means the very smallest, the very biggest, from the materials suppliers through the component suppliers, through the system suppliers and integrators, on up to the vehicle manufacturers. And a lot of small to midsize companies are really hesitant to join the bandwagon because, on one side, they're waiting for the auto companies to tell them what to do. On the other side, they're fearful that the companies are going to tell them what they have to do, and they won't have the capital resources to put these systems and processes in place.