Just what does Covisint mean, anyway?
How the auto industry's B2B supersite will transform its supply chain
Covisint aims to be a lot of things to a lot of people in the automotive industry, starting with the industry's largest suppliers and working down through the supply chain.
For the last few years, the business world has been enthralled by the Internet. The stock markets are awash in all kinds of high-tech ventures pushing into every last nook and cranny of the economy.
So why is there such an interest in Covisint, the automotive industry's business-to-business (B2B) Internet supersite? Two reasons: First, it's supported by none less than General Motors, Ford, and DaimlerChrysler. Instead of being a start-up hoping to capture market share, http://www.Covisint.comis being designed from the ground up, with its core market in place and participating in its development.
Second, it seems to be working.
"Since we've started ... we've gotten high marks from not only the auto industry but the Internet industry," said Dan Jankowski, company spokesman. "They are recognizing our value and the advantages we are bringing to the auto industry."
Covisint is a created name that reflects both that it is a brand-new approach to the industry and the Internet reality that many conventional names already have been taken as domains, according to Jankowski. "Co" stands for cooperation and communication, "vis" is for visibility and visions, and "int" is for Internet and international. The site is designed mainly for electronic procurement of parts, supply chain management, and product collaboration between the auto manufacturers and their entire supply chain.
On Feb. 25, 2000, the Big Three automakers announced they were planning to combine resources to form a new Internet venture. This venture was to be a single global portal - - an integrated supplier exchange connecting everyone from the automakers to the mom-and-pop shops. The vision was that jobs could be bid on, supply chains could be better managed, and even that the research and development cycle could include input directly from downstream suppliers.
Word spread. Later in the year, Nissan of Japan and Renault S.A. joined the venture. Suppliers such as Delphi, Magna International, Collins & Aikman, and Yazaki N.A. also have joined the team. On Oct. 6, ArvinMeritor, Inc., an international Tier 1 supplier, made the first purchase on the site, buying injection-molded plastic parts for an undisclosed price.
What Suppliers Are Saying
"We've been involved in e-commerce, even before Covisint," said Sam Locricchio, public relations manager at ArvinMeritor. "We've used online auctions with our suppliers. Part of the reason we're participating in Covisint is that we've seen significant savings using these [other] techniques.
"[Another reason] we're involved is that these technologies are moving so fast, there is no catch-up time. We can't afford to wait to be involved."
"Participating in Covisint has already paid off," said Mike Karl, Yazaki North America's Covisint project manager. Yazaki manufactures electronic systems and was invited to join Covisint by DaimlerChrysler.
"We're in close communication with the manufacturers and 60 Tier 1 companies," Karl said. "We're now more confident in our long-range planning, especially for Internet applications."
"Covisint is beginning with a controlled rollout of features," Jankowski said. "Right now we have limited ourselves to 40 suppliers and manufacturers. They are bringing their concerns and expertise to the project. We plan to fully open up [this year]."
Almost any project involving so many major companies creates antitrust concerns. An information portal can be used to speed orders and product development. It also could be used to control prices artificially, exclude competition, control suppliers, and for other activities that typically trigger governmental intervention.
Covisint is the first B2B venture to be reviewed by the Federal Trade Commission (FTC) and the Bundeskartellamt, Germany's antitrust regulatory agency. During this approval process, the FTC issued the report "Entering the 21st Century: Competition Policy in the World of B2B Electronic Marketplaces," which outlines the FTC's concerns and what B2B sites must consider to avoid antitrust actions.
"We fully recognized the antitrust issues from the beginning," said Jankowski. "The [preliminary approval] process went smoothly … and we will continue to work with the FTC to ensure antitrust issues do not become a problem."
How the Site Works for Participants
A Web-based system allows participants to work across computer platforms and operating systems without requiring participating companies, especially the smaller ones, to invest in special systems. Oracle, Commerce One, and NexPrise are providing much of the technology to make the site possible.
"We're beginning to use this as Yazaki's extranet, connect our worldwide operations, as well as for our communication with others," Karl said. "It's saving us hundreds of thousands of dollars, if not more, in developing our own system."
Automakers face intense competition in selling their end products but must cooperate to develop engineering and manufacturing standards, purchasing procedures, and even part specifications to ensure future profitability. Their vendors have to be able to do the same up and down the supply chain while still being profitable and competitive. This conflict has posed one of Covisint's largest nontechnical challenges.
Typically, if an automaker wants to increase a particular vehicle model production by a thousand units, it is a very linear process, according to Jankowski. The OEM asks its Tier 1 suppliers if and when they could support the change. Each Tier 1 supplier contacts its Tier 2, the Tier 2 contacts its Tier 3, and so on, down to the final widget-maker. Then the information has to go back upstream to see if the change can be done and how long it will take.
Covisint, in contrast, will create "instant visibility" and allow participants to adjust production, control inventories, and manage delivery schedules across the board, according to the company. Not everyone sees this working quite this way.
"I can see the value in seeing up one level to your customer and down one level to your suppliers, but I don't see why a manufacturer, for example, would want to look down to the Tier 2 supplier or below," Karl said.
It's up to that Tier 1 supplier to manage its own business and own supply chain, then sell up the chain, according to Karl. The small shops may be able to use Covisint to work with their clients, but Karl said he doesn't see the manufacturers reaching down, cutting the supply chain, and affecting downstream business relationships. Covisint may, however, speed communication without requiring complete visibility up and down the chain, thus preserving business relationships.
Security is a central concern, both from an antitrust standpoint and in regard to competition among participants. Using combinations of firewalls, passwords, encryptions, and other security mechanisms, Covisint gives users only the access and features authorized, according to agreed-upon protocols and procedures.
"There is a tremendous process to vet suppliers for a given manufacturer," Jankowski said. "A company still has to go through the process with a potential client to become included in the supply chain."
However, once a company is in the loop, "the smallest mom-and-pop shops will be able to participate," Jankowski said. "Their cost will be less than a cable TV subscription. The manufacturers and Tier 1 suppliers will have the largest range of features, and the cost will be partly subscription-based and partly transaction-based."
Users will be able to access a variety of features, ranging from buying and selling products to updating their own portion of a given catalog to getting the latest forecast information. Another system will give OEM engineers a collaborative environment with other engineers, suppliers, fabricators, and part manufacturers. Other hosted services are planned. The Covisint Web site has Macromedia Flash-enabled demonstrations of how these procedures will work.
"Covisint has the potential to become a vital hub in how we do businees," said Rick Radecki, director of e-commerce for Delphi, an international auto parts and systems supplier. "It's not just about saving time ... but saving money. We can lower transaction costs, better manage production to reduce shipping and warehouse costs, and reduce overhead in our operations.
"If everyone [in a supply chain] reduces their costs, it rolls into savings for the automaker. Goldman-Sachs analysts estimate as much as $3,100 can be saved on the cost of each vehicle by using [Covisint]."
All of the savings and integrations won't happen overnight, however.
"We won't know what the potential [of using Covisint] will be until we start using it," Ford spokeswoman Fara Warner said in an October 12 article from Bloomberg News. "A lot of this now is guesswork."
In the same article the Gartner Group, which participated in the FTC study, estimated it could be 2002 before the exchange is able to conduct more than rudimentary transactions.
This doesn't seem to bother the participants.
"We're not sure if Covisint or something like that is 'the' answer," said ArvinMeritor's Locricchio. "My gut feeling is that it is, but if it is not, we need to know that, too.
"We need to know what works, what doesn't work, and how to make it work," Locricchio added. "The lessons we learn through Covisint can be used in our own e-commerce efforts. We've already saved $2.2 million in our own operations [through e-commerce] and have identified another $1.2 million. There's no doubt that using the Internet can increase efficiencies and reduce costs."
Most of the major automotive suppliers already are active in e-commerce. E-commerce spinoffs - - such as GM's TradeXchange, Ford's Visteon, and DaimlerChrysler's DCX NET - - show that manufacturers are not relying solely on Covisint, either.
Covisint recognizes this and is working on ways to integrate with its participants' e-commerce efforts. It also is reported to be working on connecting to other commodity sites such as MetalSite.com, a successful metals commerce site developed by Bethlehem Steel, Weirton Steel, and other steel producers. Other developing sites are working toward being Covisint-compatible, such as the BigBadCatalog, which will address the $24 billion a year specialty automotive aftermarket.
Covisint is poised to not only become the automotive standard for e-commerce, but to present a new way for traditional industries to do business. The support and feedback from various manufacturers and suppliers seem to assure the industry and regulators that it will be a viable method for reducing costs without sacrificing competition. However, how this will work for the manufacturers and suppliers below the Tier 1 level has yet to be seen.