A unique alliance among the giants of the global automotive business is creating an international network for the sourcing of components around the world.
This new virtual automotive supermarket promises to help level the playing field for smaller companies and isolated source countries such as South Africa.
General Motors, Ford and DaimlerChrysler are the founding partners in this new e-business enterprise, kick-starting it with the $240 billion in parts and raw materials that the Detroit Big Three buy every year. They are expected to be joined by other OEMs as this new virtual automotive market expands to embrace as many as 10,000 supplier companies.
Companies outside the motor industry - such as aviation`s Boeing and Airbus - may be invited to join later.
Benefits for the vehicle makers including greater efficiency and a reduction in supply side costs. Motorists should find that new models come to market faster and vehicle price increases are contained better. If just a month can be shaved off the typical 24 that it takes to develop a new model, a car company can easily save $40 million.
Collaboration between vehicle makers has been inhibited until now because tough American anti-trust legislation could damage them in the world`s most important market if they are found to be colluding in restricting competition. But smart lawyers have found a loophole in US federal anti-trust rules that has permitted this remarkable virtual market for automotive supplies and services to be created on the Internet.
GM`s global purchasing chief Harold Kutner says that a new company is being formed "to create the world`s biggest, fastest, largest exchange for transacting business that the Internet or probably any other businesses have ever seen."
It is expected that about 500 employees will be recruited to get the new automotive ebusiness network up and running during 2000. Each vehicle maker who joins the Big Three in the venture will be able to post its requirements to the network and invite suppliers around the world to bid for their business. Similar facilities will be available to the OEMs` own suppliers.
The same network will be used to liaise on such supply issues as engineering design and deliveries and may be extended into the distribution channel to embrace dealers also.
There is no name yet for the new network, which effectively will combine GM`s TradeXchange and Ford`s AutoXchange online initiatives to create global supply auction facilities. Component suppliers played a key role in getting the two OEMs to merge their e-business efforts and try to bring other manufacturers into one giant global operation.
DaimlerChrysler, Renault, Nissan and Toyota are expected to join soon and every other major OEM seems positively disposed towards participating because it makes such good sense and they will be at a substantial competitive disadvantage if they do not join.
Renault and Nissan are expected to announce this week how they will fit into the new ecommerce venture. The new automotive network will have state-of-the-art encryption and security features to protect it from hackers and enable participating companies to preserve confidentiality. The operation will be funded by fees on transactions that could give it an annual operating budget of as much as $5 billion.
The impact that this new global procurement facility will have on the component industry is likely to be an enormous. By opening up bidding to suppliers around the world it will have the effect of driving down prices in a business where margins are already very tight.
However, the component makers will be able to use the network to lower their own costs, such as forming consortia to get raw materials more cheaply.
The decision by Ford, General Motors and Daimler Chrysler to form a combined procurement platform is regarded as heralding the next generation of business-to-business e-commerce. Other industries are expected to set up similar shared supply chain networks as "virtual companies`` to unlock untapped potential and value in the procurement process.
These will exploit increasing international standardisation to reach through supply chains to cut costs, encourage innovation and establish industry-wide - and world-wide - sourcing patterns that replace the traditional supply chains and the relationships that OEMs have had with their suppliers.
Share