S8 group studies fail to lead to new exchange

Covisint continues to take the highest profile role in the automotive exchange area and its recent evolution and current status are summarised in a separate analysis. Its position as the dominant online trade exchange has undoubtedly been strengthened as other studies-most notably that by the so-called S8 group of tier 1 suppliers-have concluded without any formal exchange structure being agreed.

Six first-tier suppliers announced plans in mid-2000 to conduct a joint study of B2B Internet-enabled technologies with a view to addressing technology issues and identifying solutions to those issues. The stated objectives were fairly broadly defined-to improve supply-chain management, support the business efforts of customers through collaborative solutions, to improve competitive advantage by increasing speed and competitiveness, and to reduce costs at all levels of the value chain.

The eight companies, Dana, Delphi, Eaton, Bosch, Tenneco, Timken, TRW and Valeo, stressed from the outset that the studies were designed to be complementary to the e-commerce initiatives of customers and that the venture should not be misconstrued as a revenue-generating scheme. Nevertheless, this did not prevent widespread speculation that the result would be broad collaboration on future projects, including a possible Covisint rival. The actual outcome has confounded these expectations, the participants having recently concluded contact. Each will now pursue its own independent e-business route, using the knowledge gained to enhance its own technical capabilities and to complement the strategies of major customers, some of which are entwined with Covisint and some of which are outside this exchange.

SupplyOn moves into its operational phase

In contrast, the German-supplier dominated e-marketplace, SupplyOn (Supply Chain Online or just Supplier Online), development of which has been driven by Bosch, has now moved into its operational phase. The exchange is procurement driven and was established in mid-2000 with five founding suppliers: Bosch, Continental, INA/LuK, ZF and SAP. These suppliers were subsequently supported by 13 associate members including VDO, Brose, Degussa, Eberspächer, Hella, Knorr Bremse, Kolbenschmidt-Pierburg, Mahle, Mann & Hummel, Phoenix, Webasto and Wurth. Under the terms of the venture, Bosch now has a 36% holding in SupplyOn, while Continental, ZF and INA/LuK have 18% each, and SAP 10%. Future dilution of these existing stakes is possible if new members join these five founding participants.

According to Bosch “the common goal is to build up an industry-wide procurement platform for the automotive supplier industry and to set common standards for communication and transactions between tier 1 and tier 2 suppliers as a complementary approach to the initiatives of our OEM customers”.

Roots traceable to e-procurement activities at founding suppliers-

Although the exchange was established in 2000, its roots can be traced back to at least 1999 when ideas first began to gel. However, prior to this the five founding participants had individually initiated several e-business procurement activities, primarily relating to non-production-related goods such as maintenance, repairs and operations (MRO) items. These initiatives replaced traditional purchasing of such items, which was notoriously cumbersome and costly, with little centralisation and complex approval procedures.

Figure 1.1 Diagram: E-initiatives of SupplyOn’s founding partners

Source: SupplyOn

Bosch leading the way

At Bosch, changes were originally introduced in three areas:

• Catalogue buying;
  
• Web EDI; and
  
• ePurchasing

The company began its intramarket activities in 1998 with office supplies and added further material groups like tools or chemicals. Suppliers of such equipment to Bosch placed previously negotiated catalogues on a Bosch intranet, allowing employees to order requirements directly from their PCs. All administrative processes including payment were then conducted using the Internet. Comparison of the old and new methods showed that process costs were reduced by 50% and process steps cut from 12 to seven. This is at the high end of the normal 25-60% saving range and represents a significant monetary cost saving for any supplier.

Bosch also conducted a second pilot project in the form of an Internet-based data exchange. This was aimed at links with tier 2 suppliers, many of which are small companies for which dedicated EDI links are too expensive (traditional EDI connection requires high transaction volumes for economic operations-over 500 transactions per month), resulting in the prevalent use of fax and telephone for communication. Bosch found that a cost-effective Web EDI gave it a new opportunity to replace most of this fax and phone communication with Internet communication. The initial focus has been on scheduled order data, supply and shipping data, credit notes, as well as inventory and inventory movements. The Web EDI does not require deep process integration and is well suited for sporadic communication with few transactions.

Figure 1.2 Diagram: Bosch’s Internet-based data exchange

Source: SupplyOn

Bosch’s third pilot project was the implementation of an electronic procurement system in place of the traditional purchasing process for production related goods, a critical step given the value of raw materials, components and subassemblies and the fact that procurement of these items is driven by production runs and handled with a high degree of automation by professional purchasers who require no approvals. The purchasing process ideally consists of three phases:

• the request for information (RFI);
  
• the request for quotations (RFQ): and
  
• the negotiation process.

All three processes can be implemented electronically. Pilot projects conducted at the beginning of 2000 showed that ePurchasing led to:

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• a uniform database between the supplier and customer;
  
• faster and simpler processes; and
  
• improved procurement results.

Figure 1.3 Diagram: Bosch’s E-purchasing initiatives

Source: SupplyOn

Success of pilot projects led to new marketplace initiative-

Overall, Bosch’s projects indicated that the use of eBusiness methods led to significant improvements in supplier relationships, especially with respect to speeding up and improving processes. Interestingly, the obvious way forward, namely building a dedicated portal, was rejected in favour of a marketplace initiative. This was founded on the belief that if each tier 1 supplier pursued an independent route, Bosch’s small and medium suppliers would be confronted with a variety of technologies and user interfaces. As well as complementing the initiatives taken by OEM customers, creating the SupplyOn automotive supplier marketplace in tandem with other participants was seen as delivering three key features:

• common standards;
  
• shared costs; and
  
• pooled know-how.

Bosch has also acknowledged that taking the initiative meant the field was not ceded to “new economy” companies.

Which is targeted at the tier 1/tier 2 supplier interface

The marketplace is clearly positioned between tier 1 and tier 2 suppliers but participants will also transact business with OEM customers through platforms such as Covisint or VW’s ESL. SupplyOn will offer so-called “private services” which involve information exchange and transactions, for example price quotations or negotiations, conducted in a one-to-one relationship between the supplier and the customer while observing strict security requirements. These will complement the “common public services” such as a business directory in which the suppliers can make their important key data and information generally available.

Figure 1.4 Diagram: SupplyOn’s position at the tier 1/tier 2 interface

Source: SupplyOn

Figure 1.5 Diagram: SupplyOn’s range of user services

Source: SupplyOn

SupplyOn has four key modules-

SupplyOn is structured into four key modules with tiered functions in each. These can be summarised as follows:

• General purpose
  – access control
  – document exchange
  – backend integration

• Procurement
  – ePurchasing (eRFI/eRFQ/online bidding)
  – catalogue

• Logistics
  – demand awareness/ satisfaction
  – returns management

• Engineering
  – collaboration platform
  – model quality check and data conversion tool

Parts of which are now operational

The current status of SupplyOn can be summarised as follows.

• SupplyOn AG has already been established
  
• Shareholders’ contract has been signed (Bosch has a 36% stake)
  
• ePurchasing functions have been developed
  
• Test and pilot runs have been conducted since July 2000
  
• Operational rollout started in November 2000 (40 of Bosch’s suppliers are currently connected)
  
• Development of further Purchasing, eLogistics and eEngineering functions is underway by the five founding members and the 13 associated participants
  
• Invitations have been extended to all other suppliers to become partners

RubberNetwork set to go live in the first quarter of 2001-

Shortly before the formation of SupplyOn, six of the world’s leading tyre suppliers-Continental, Cooper Tire & Rubber, Goodyear, Michelin, Pirelli and Sumitomo-had announced the formation of RubberNetwork, a worldwide, public B2B marketplace which is specifically oriented to the buy side of the tyre and rubber industry. Its aim is to provide not only generic business services, but also services that focus on the specific business practices of the sector. The consortium currently expects that the online site, based on technical infrastructure provided by an alliance of IBM, i2 and Ariba, will be operational in the first quarter of 2001 and be open to all manufacturers and suppliers. It is also expected to work closely with other existing and future exchanges. Total purchases within the tyre and rubber industry, which include raw materials, equipment, machinery, goods and services, are estimated at more than $50bn a year. The IBM-i2-Ariba alliance was agreed in March 2000 with all three participants pooling their software products to create a full package of the technologies needed to build and operate an online B2B exchange.

With its initial business release

RubberNetwork’s initial business release, scheduled for the first quarter of 2001, will include:

Procurement

• Requisitioning
  
• RFI/RFQ
  
• Browse and buy from supplier catalogues
  
• Use of purchasing cards (p-cards)

Auctioning

• RubberNetwork managed

Catalogue content and management

• Management tools, including templates for suppliers
  
• Catalogue search engine
  
• Catalogue content

Buyer-seller demand collaboration

Future releases are targeted at expanding and extending basic services including enhanced catalogue search capabilities, self-managed auctions, inventory and procurement collaboration and order fulfilment. Financial settlement capabilities and logistics are also under evaluation.

RubberNetwork is designed to provide benefits for both buyers and sellers in the tyre and rubber sector. For buyers it promises enhanced purchasing efficiencies, access to one-stop shopping, exposure to an expanded supplier base, reduced transaction costs, improved productivity, and improved supply chain efficiencies.

Similarly, for sellers it should offer reduced sales and marketing costs, standardised transaction formats, exposure to an expanded customer base, increased sales volume and market share and, as with buyers, improved supply chain efficiencies.

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