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April 9, 2001 |
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Steering Around The Wreckage
Covisint tries to succeed where other online marketplaces have failed
By Steve Konicki (skonicki@cmp.com)
ovisint LLC, the auto industry's online exchange, is ramping up even as other E-marketplaces close down and as business-to-business platform vendors such as Ariba Inc. and Commerce One Inc. signal slowing sales. Can Detroit's expensive and highly ambitious technology project succeed where others have failed?
Top managers at Covisint, founded last year by DaimlerChrysler, Ford, and General Motors, remain upbeat. "The pressure for adoption is big" among the automakers, says Rico Digirolamo, Covisint's acting CEO. "These guys want to move to the Internet as fast as they can." The goal: To have all of the industry's top suppliers on board by year's end.
The exchange, which already supports procurement and auctions, is adding higher-level functionality that could draw in more participants. Last month, it added supply-chain services, which are needed to support its vision of connecting automakers and suppliers in real time to manage the supply and fulfillment processes. And Covisint's first design collaboration projects, based on technology from NexPrise Inc., are in test mode. The company expects both services to be generally available within a few months.
There are other signs of progress for the year-old marketplace, which launched with $150 million in funding. In the first quarter, Ford and GM quietly transitioned their private trading exchanges, which did $1.5 billion in procurement last year, over to Covisint. Covisint says it has commitments to join from a third of the automakers' 150 largest (or tier-one) suppliers, and another 30 are close to signing. That would make more than half of tier-one suppliers "anchor" tenants, potentially pulling along thousands of second-and third-tier suppliers. Another step in that direction: 750 auto suppliers who already use SupplySolution Inc.'s supply-chain software, which Covisint has adopted, will automatically become members of the exchange this year.
"We see a lot of potential savings in [using Covisint to] connect the supply chain with automakers," says Dan Holland, E-business technology director at Delphi Automotive Systems Corp. in Troy, Mich. That jibes with other cost-cutting efforts under way at the tier-one supplier, which is selling or closing nine plants and eliminating 11,500 jobs.
But Covisint faces challenges. In the fourth quarter, automakers used the exchange to manage only $350 million of business, mostly for maintenance, repair and operational supplies. And despite months of looking, Covisint has no permanent CEO. DaimlerChrysler hasn't moved its private exchange, FastCar, onto the shared marketplace. And Ford is considering using 3-D modeling tools other than Covisint's.
All this sends mixed signals to Bill McCreary, VP of technology with Pilkington plc, a tier-one glass supplier in Toledo, Ohio. "We're assuming Covisint won't deliver" everything promised, he says. Gartner analyst Karen Peterson agrees that the automakers' continued B-to-B activity outside Covisint makes it "obvious" they still question whether Covisint can deliver the seamless design collaboration and supply-chain platform it promises.
International Truck and Engine Corp. in Terrace, Ill., has its own set of concerns. Art Data, International's VP of IT, questions the extent to which the automakers will use Covisint to design cars, procure parts, or manage inventory. But the tier-one engine supplier and truck manufacturer isn't waiting for the answers. It's testing NexPrise's design-collaboration application with Ford on Covisint. "We aren't letting the fact that there are growing pains stand in the way of our taking full advantage of what Covisint will offer," Data says.
Indeed, acting CEO Digirolamo, who hails from GM, insists there are strong reasons for suppliers to make Covisint a priority. "Early adopters gain a competitive advantage by being able to do business with the automakers using the tools automakers want to use," he says.
Covisint insiders say automakers plan to use the exchange to manage up to $75 billion in spending on vehicle parts this year, which would translate into $100 million to $200 million in revenue for Covisint via subscription and transaction fees and licenses.
There's still millions of dollars of integration work to do. Late last month, Covisint signed contracts with Cap Gemini Ernst & Young and Deloitte and Touche to help with that, and with revamping business processes--critical if manufacturers are to achieve faster product development. "You can't expect to use new tools in the same way that you've run your business and expect to get dramatic benefits out of them," says J. Kevin Vasconi, Covisint's chief technology officer.
Covisint's vision of connecting the entire supply chain must also encompass smaller suppliers that couldn't afford to adopt past online efforts, such as electronic data interchange. A recent study of more than 400 Ohio auto suppliers by the Technology Policy Group found that none of the tier-three respondents intends to do business on the exchange. Covisint says that should change once those suppliers realize they need only a Web browser to use its supply-chain component.
And here's something for those small suppliers to consider: Digirolamo says once upper-tier suppliers adopt the exchange, lower-tier suppliers that want to continue doing business with them will have no choice but to join. Just ask Goldman Industrial Group Inc. in Boston. Last year, Ford stopped buying machine tools from one of its subsidiaries that couldn't do business electronically. Jack Lowry, group VP of IT and materials, built up the E-business infrastructure, and Goldman is winning back business. Now, the company wants to join Covisint to expand into building auto parts.
Says Lowry, "It will take some convincing that we've gone from nowhere to being fully connected so that we can interact with them at a much higher level, but we can."--with Alorie Gilbert (agilbert@cmp.com)
Photo by Eric Breitenbach
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