InformationWeek
Defining The Business Value Of Technology
|
August 7, 2000 |
 |
Covisint's Rough Road
The automobile industry's ambitious online exchange faces big challenges
 |
| More on Covisint: |
|
|
 Send Us Your Feedback |
he wheels are turning fast now at online auto-industry exchange Covisint. With its projected launch only weeks away, sleep-deprived software developers and testers at its Southfield, Mich., headquarters are working out the last-minute kinks in an assembly-line process Henry Ford would have envied--one that ultimately will stretch not just from chassis to finished automobile but from the supplier of the coolant temperature sensor all the way to the dealer showroom.Times have certainly changed since car buyers could order a Model T in any color they liked--as long as it was black. If Covisint lives up to its promise, auto manufacturers someday will have in place a system that will let consumers custom-configure a car--from engine size to upholstery color--and drive it home a week after placing their order. Engine and chassis supplier Dana Corp., which last month signed a letter of intent to use Covisint as its primary exchange, is eager for the supply-chain offerings Covisint will bring to market one day. "GM says that when somebody in a dealership orders a car with leather seats, the cow should wince," says Doug Grimm, director of global strategic sourcing for Dana, in Toledo, Ohio. "We want that type of communication from dealer back through the chain all the way down to the steel supplier that makes the steel bars that go into the forging that goes into the gear that goes into the power train."
The exchange is backed by five of the world's leading carmakers and someday is expected to encompass nearly 40,000 parts suppliers. Covisint's goal to to save billions of dollars for both parties through real-time planning efficiencies; it may eventually serve as the model for other large business-to-business exchanges around the globe. But current reality is something different, says Joshua Greenbaum, a principal analyst at Enterprise Applications Consulting. "We're in Covisint hell right now," Greenbaum says. Only 12 of the 40 most important suppliers have signed on with Covisint, and many top-level suppliers are building private exchanges while talking about a suppliers-operated marketplace that will provide real-time visibility into their supply chains, he says. Tens of thousands of lower-tier suppliers have no idea what's happening with Covisint, and technology vendors working on the exchange still don't see a cohesive strategy, Greenbaum adds.
Alice Miles, Covisint's interim co-CEO, says that attitude ignores the scale of the operation. "We're trying to focus on suppliers that are representative of the full supply chain," she says, and Covisint is negotiating with dozens of partners. Covisint's long-term goal is to sign up as many as 8,000 of the largest suppliers and let them involve their own lower-tier suppliers--of which there are more than 30,000--in the chain.
Despite Covisint's problems, the concentrated buying power of the automakers will make it easier for them to build the first giant Internet exchange than it would be for other industries, says Charles Phillips, Morgan Stanley Dean Witter's managing director. Phillips is credited with initiating the meetings between Ford Motor Co. and General Motors Corp., which had been planning private exchanges, that resulted in the birth of Covisint five months ago. Ford and GM recruited DaimlerChrysler AG and the three unveiled the exchange just weeks after the idea was presented to them.
GM and Ford estimate they'll save billions of the $250 billion they spend annually for direct purchasing of raw materials and pre-assembled components. The automakers also say Covisint will one day save between $1,200 and $3,000 on the production of each car, with about half the savings going to suppliers, which will be linked to real-time sales information and production schedules instead of quarterly projections, weekly estimates, and daily updates via electronic data interchange. All this is expected to lead to a true just-in-time manufacturing model that will eliminate the need for inventory stockpiling.
Just as important, the exchange could cut months from pre-production planning and do away with paperwork associated with car design. Engineers and designers at the suppliers' and manufacturers' sites will collaborate over the Internet on the creation of an automobile. Mock-ups built using real-time 3-D design collaboration tools will take the place of mock-ups built in clay and steel. This will compress the time to bring a car into production from 48 months to 12.
Covisint executives say the system they're putting in place will do more than serve as a model for exchanges--they'd like to host other industries that may be interested in using the Covisint platform to support their multitier supply-chain transactions. "Companies are beginning to see technology as a way of doing business instead of just a cost of doing business," Phillips says.
By bringing in new industries and charging transaction fees, the exchange might be worth $50 to $60 billion on the stock market, according to some estimates, when it's spun off as a separate company sometime in the next few years. All of the participating automakers, which now also include Renault S.A. and Nissan Motor Co., and the exchange's two software partners, Oracle and Commerce One Inc., are taking an equity stake in Covisint.
Covisint's name is shorthand for connectivity, collaboration, visibility throughout the supply chain, and international scope--in other words, all the goals of any business-to-business exchange. Despite its grand ambitions, Covisint hasn't attracted all the major car companies to its side. BMW and Volkswagen AG are planning their own exchanges, and Toyota Motor Corp., though considering Covisint, is also building an exchange for replacement parts suppliers.
Additionally, the auto manufacturers have yet to name the supply chain, logistics, or fulfillment applications that will power Covisint, not to mention a permanent CEO (see sidebar story, "Covisint Searches For The Perfect CEO"). And though the exchange hasn't hosted a single transaction, both the Federal Trade Commission and the European Union have begun investigating the possibility of anticompetitive trade practices (see sidebar story, "Is Regulatory Watchfulness Right For Fast-Moving Market?").
Covisint already missed its first go-live date in May, a delay industry observers blame on the FTC investigation, turf wars among the software partners, and infighting among the auto companies. Also, the capabilities expected to be available to manufacturers and suppliers in the fall launch will be limited. They can be termed "version 1.0," with the same limitations as any version one, says Peter Weiss, a DaimlerChrysler executive who, along with Ford's Miles, was tapped to act as one of three interim co-CEOs in charge of the exchange. Weiss, responsible for Covisint's technology, and Miles shared the slot with GM's Alan Turfe, who was responsible for the exchange's business plan. But last month, Turfe left to take the CEO job at a metals exchange startup--and the move leaves some analysts questioning whether Covisint's first release will be delayed further.
Covisint denies Turfe's departure will delay its launch, and says it will have the technology in place to enable different tiers of suppliers to share information one-to-one. But Weiss says initially there won't be transparent, real-time, two-way supply-chain connections between the auto companies and all tiers of suppliers, so most supply-chain operations will continue to rely on older methods of communication, including EDI, fax, and phone.
Essentially, that means there's no new technology in Covisint's first offering, says Gartner Group analyst Karen Peterson. While Covisint won't specify the software it's using, the features in version 1.0 match those in products Commerce One and Oracle have been selling for months. Analyst Greenbaum adds that Covisint's first-generation offering is a disappointment because newer software ex-ists from these vendors that would immediately provide realtime supply-chain management capabilities more like those promised by Covisint--and Covisint won't say when it will ramp up to the next level of capabilities.
continue on to page 2
Illustration by Peter Horvath
Photo by Andrew Sacks
Back to This Week's Issue
Send Us Your Feedback
Top of the Page
Featured Microsite
