The eCommerce revolution has taken its next step in the automotive industry. After GM launched its MarketSite trade exchange in November, the leading tire manufacturers launched their own exchange in April 2000, operated by a new company, called RubberNetwork.com. The initiative was launched by six of the leading world tire manufacturers including Goodyear/Sumitomo, Bridgestone/Firestone, Pirelli, Michelin, Cooper and Continental, which together account for approximately 80% of the world’s tire output.
RubberNetwork.com is expected follow a similar model to GM’s MarketSite: essentially, the exchange will firstly allow tire companies and their suppliers the opportunity to trade within an online forum, and secondly to combine their purchasing power to source their supplies at higher discounts. Both these factors have the potential to cut costs significantly whilst pushing efficiency levels to new heights.
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There are several key benefits of the tire exchange for both buyers and suppliers. With the majority of tire manufacturers on-line, suppliers will have easier access to their new customers, which is likely to encourage numerous suppliers to join the exchange. For tire manufacturers, the key advantage stems from the increased number of suppliers, a catalyst for lower prices due to higher levels of competition. Another key advantage for both buyers and suppliers is the lower transaction costs involved within online trading; according to GM, transaction costs of processing an electronic order over MarketSite will become a tenth of the cost of processing the same order off-line, representing a huge cost saving.
Another key advantage of the system also holds the greatest risk for companies on the Trade Exchange. Combining the purchasing across several tire manufacturers will lead to significantly higher discounts, which is especially beneficial for the smaller tire manufacturers. However, for the larger tire manufacturers, this represents a reduction in competitive advantage, since underlying raw material costs would now move onto a level playing field, as products will be sourced at the same rate across all manufacturers. The success of the bulk-buying aspect of trade exchange is unclear at this time. Competitive advantage in the tire industry is key due to the high levels of competition therein, and tire manufacturers are likely to watch the development of this aspect rather carefully in the future.
