General Motors, Ford Motor Co. and DaimlerChrysler AG are putting more pressure on suppliers to join the Automotive Network Exchange, a private business-to-business computer network that was launched last year.
That sales job should get a little easier with the announcement that Toyota Motor Corp. will likely become the fourth automaker in North America to adopt the exchange as its data pipeline for electronic commerce.
Having Toyota on board likely will accelerate acceptance of the exchange as the industry standard.
Although pitched as the auto industry's solution to supply chain communications, the exchange is now priced at a level that puts it out of the reach of smaller companies. But the automaker-led trade group promoting the Automotive Network Exchange - the Automotive Industry Action Group - is trying to come up with lower-cost options to broaden the network's appeal.
'They've built a very good network,' said Jeff Roof, vice president of customer operations at software maker CMI-Competitive Solutions Inc., a subscriber. 'But the price is difficult to swallow.'
By putting more velocity behind communications, automakers hope to shorten the time it takes to design, build and deliver vehicles to car and truck buyers.
The Automotive Network Ex-change, which is based on Internet technology, will be used for routine business communications, engineering work and a host of other applications. As more suppliers join, automakers also will be able to communicate with a large portion of the supply base instantly.
The Automotive Network Ex-change is designed to replace the multiple point-to-point computer links that suppliers now need to do business with automakers. In contrast to the public Internet, the Automotive Network Exchange promises to move confidential business information through its electronic pipeline in a secure and reliable fashion at a reasonable cost.
If automakers are to do anything about speeding up their order-to-delivery cycles, and reducing bloated inventories, improving communications with the supply base will be crucial.
Last month, more than 300 suppliers that do business with GM, Ford and DaimlerChrysler were encouraged to subscribe to the Automotive Network Exchange by October, according to a letter signed by the automakers' top purchasing executives. The exchange now has about 200 subscribers, with another 70 in the process of getting connected.
To make the exchange more attractive to smaller suppliers, the Automotive Industry Action Group is hoping to have a scaled-down, dial-up service available by Oct-ober for less than $200 per month.
$1,000 PER MONTH
For faster connections, the Auto-motive Industry Action Group is looking at other options that would push the Internet service to about $1,000 per month, said Karl Schohl, business manager for the Automotive Network Exchange. 'We're starting to come down,' he said.
The organization published information last year for one unidentified Tier 1 supplier showing an initial investment of $23,000 and annual service costs of $55,000. The same supplier, according to the Automotive Industry Action Group, formerly managed 10 leased lines and dial-up connections at an annual cost of $153,000.
While every company has different requirements, the organization's estimate may be on the low side.
Magna International Inc. is spending about $13,000 per month for two exchange connections, said Rob Burns, manager of network communications. That monthly cost is justified because Magna was spending $10,000 per month communicating just with Ford over various lines.
Up-front infrastructure costs are hard to estimate because much of the hardware could be used for general Internet purposes, Burns said. But he expects Magna's investment will likely be recouped in the first year.
Magna is using the Automotive Network Exchange not only to connect with customers, but to improve communications among its own divisions, Burns said. Magna has an entrepreneurial, decentralized culture that can make it difficult for company people to communicate across divisions or shape a common communications infrastructure.
Burns said Magna turned to the system to reduce information technology costs, simplify its computer network and improve the flow of business communications. He expects the exchange to become an industry standard.
A `PRIVATE INTERNET'
'It's like a private Internet for the auto industry,' he said. 'Everyone, over time, is going to be on ANX.'
CMI-Competitive Solutions, which develops programs to run business operations, joined the Automotive Network Exchange to test its software. The company is paying about $30,000 per year, on a 36-month contract, for a relatively lightweight 56 kbps connection.
The Automotive Industry Action Group has built 'a tank of a network' at a cost that could be justified by Tier 1 suppliers, CMI's Roof said.
Toyota, now with 10 manufacturing sites in North America, is turning to the Automotive Network Exchange to improve communications with its supply base and speed the development of new vehicles, said Gene Tabor, general manager for purchasing at Toyota Motor Manufacturing North America.
'The way we move information translates into a bottom line cost impact,' he said.
One area at Toyota that 'still needs a lot of improvement' is the use of computer simulations to build and test parts, Tabor said. A better communications pipeline will help automakers and suppliers to collaborate online. Vehicle launches also will go more smoothly if Toyota can communicate last-minute design changes with greater speed and accuracy.
Jim Bolte, general manager for information systems at Toyota North America, said the automaker acknowledges that there may be other communications options to the Automotive Network Exchange. But the security and performance guarantees led it to the service.
For the next year, Toyota will evaluate the Automotive Network Exchange. By mid-2000, it hopes to go online with documents that suppliers use to bid on contracts. By 2001, suppliers and Toyota may be exchanging engineering drawings over the exchange.
Said Bolte: 'We're confident we'll be able to roll this out as part of our electronic commerce strategy.'