Distracted by Covisint's spectacular flame-out, few have noticed that the e-marketplace set up by Bosch and other German suppliers at around the same time may already be profitable.

Covisint, the motor industry's first mega B2B exchange, was launched with grand ambition and much hype in February 2000. But the more flexible and focused approach of Munich-based SupplyOn has proved far more successful.

Covisint sought to "provide compelling services" in three key operational areas - procurement, product development and supply chain management.

It failed, despite the backing of its original founders - Ford, GM and DaimlerChrysler, joined later by Renault-Nissan and PSA/Peugeot-Citroen.

The carmakers had hoped to cash in via an IPO that was expected to be nothing less than history's largest.

But by 2003 Covisint was shedding key parts of its business and offering fewer and fewer services as it constantly redefined its role.

The e-catalogue business was dumped last October and the auction business was sold to FreeMarkets two months later.

This striptease ended in early February, with a rump of messaging products and technology being absorbed by Compuware Corp. for an undisclosed fee.

This rump is expected to generate sales of just $US19 million in 2004. The OEM owners' shares were worth small change at the end.

Over-ambition, lack of a clearly thought-out business model and lukewarm support from its owners led to failure. Throw in an unstable management and the recipe for doom was complete.

The source of the Covisint name itself gives a clue to the inflated ambition - "Co" from connectivity, collaboration, communication and content; "vis" from visibility and vision; and "int" from integration, international and Internet.
Any organisation offering such an array of features is vulnerable. Many suppliers viewed it as a bulldozer intent on pushing aside competition and dominating standards and practices to the exclusion of all others.

'Phantom' auctions

In the procurement area the focus was on reverse auctions for commodity-type production components. Stories surfaced of suppliers facing 'phantom' auctions designed to screen for lowest parts prices without actual contracts being awarded.

Suppliers saw e-procurement as a way to beat prices down, rather than increase efficiency of purchasing transactions and reduce costs.

Administration of the auction process by an OEM-owned organisation led to suspicion of an uneven playing field and biased rules.

E-collaboration in product development was also doomed to failure. The founding OEMs shunned Covisint's Matrix One-based software in favour of their own legacy systems derived from the likes of Dassault Systemes and SDRC (EDS), retained behind corporate firewalls.

Covisint's inability to recruit and retain senior management undermined confidence.

The operation was initially run by a triumvirate, made up of executives from GM, Ford and DaimlerChrysler. The interim arrangement was supposed to run until July 2000, awaiting the appointment of a CEO. In fact, Covisint didn't get its first CEO until April of 2001 - an e-business specialist named Kevin English with no manufacturing or supply chain experience.

English resigned a year later and was replaced by Harold Kutner, GM's ex-purchasing czar, in June 2002.

Kutner himself retired in April 2003, and was succeeded in May by Bruce Swift, an ex-Ford of Europe purchasing executive. Swift lasted just over a month as Covisint CEO before leaving for Metaldyne.

Last June, Bob Paul, Covisint's former senior vice president of sales and marketing, took over and oversaw the organisation's unbundling.

Paul will move to Compuware as subsidiary Covisint's CEO, although how long both the Covisint name and his position continue, is open to speculation.

SupplyOn soldiers on

Meanwhile, SupplyOn's first and only CEO, Michael Klemm, recently left the online exchange to return to Bosch. That was always in the script and his tasks are now shared by three other SupplyOn Board members: Jörg Mieger, Markus Quicken and Dr Frank-Stephan Kupfer.

SupplyOn continues to be owned by a handful of German suppliers - Bosch (30.4%), SiemensVDO (15.3%), ZF (15.3%), INA (15.3%), Continental (15.3%) and SAP (8.4%).

How has SupplyOn prospered while Covisint struggled? Like Covisint, SupplyOn also claims expertise in a wide range of functionalities - sourcing, supply chain management, collaborative engineering and quality management.

But the German exchange was positioned differently than Covisint, despite competing in the same areas. SupplyOn made much of its "conceived by suppliers for suppliers" origins. And it has tried to take account of the interests of buyers and sellers to an equal extent.

The strategy has placed it in a less confrontational position in the automotive supply chain, even with the different interests of tier one and lower suppliers. The emphasis has been on promoting cost-saving efficiencies through the supply chain beneath the OEMs, taking into account the circumstances of individual suppliers.

This contrasted with Covisint's 'this-will-be-the-industry-standard' approach to the supply chain.
Second, despite SupplyOn's range of services, it has always been focused. It evolved from Bosch's experiences in the late 1990s with its own catalogue buying, Web EDI and ePurchasing projects.

These experiences showed where cost savings could be made and convinced Bosch that an e-marketplace initiative was better than creating its own supplier portal. Clear development priorities were already in place when SupplyOn was born.

For example, services in the purchasing area were focused on the early stages of procurement - requests for information (RFIs) and requests for quotations (RFQs), rather than on price negotiations and online bidding.

Realising that its fee structure was proving onerous to smaller suppliers, SupplyOn changed it in late 2002, moving from a flat-fee system to a tiered one. Monthly fees were cut to a third of the previous fee for suppliers with a turnover below €5 million.

This flexibility has helped SupplyOn penetrate the lower tiers of the supply chain with its management functionality, something Covisint failed to do.

The results speak for themselves. The total number of operational companies registered on SupplyOn now exceeds 4,500 and over 2,600 use SupplyOn's Web EDI services.

An important milestone - profitability

More than 1,550 use SupplyOn Sourcing for RFQ and related activities. This business is believed to have resulted in turnover of around €18 million in 2003, and €25 million is in sight for 2004. Profitability was also expected - though not yet confirmed - in the latter months of 2003, a major milestone.

Covisint was probably doomed from the start by its ownership structure and over-inflated expectations amid the dot com boom. It was guilty of both arrogance towards non-participants and much of the supplier sector and a lack of coherent management.

Efforts to extend Covisint's coverage to Europe and Asia also faltered.

The perception was that it was just an additional stick for the Big Three to beat down supplier prices.

There were some successes. Covisint's portal hosting abilities are respected and its new data messaging service has potential. But history will judge Covisint as a failure.

In contrast, SupplyOn continues to grow and show promise. It has proved itself as a driver of efficiency and cost savings in the procurement and supply chain management areas.

This concentration on "value for money" services has also underpinned the success of other, more horizontally-focused specialist supply chain management and e-procurement organisations, including Germany-based newtron AG, which counts Grammer, Behr, Benteler, Freudenberg and Kiekert among its automotive supplier participants.

Critics say SupplyOn remains an exclusive club for German suppliers. But the international base of the organisation will grow. Covisint's demise might just add some momentum.

SupplierBusiness.com