The automotive supply chain, with all its separate links, is starting to look more like an interconnected Web.
General Motors and Ford Motor Co. announced major programs to move hundreds of billions of dollars of purchasing activity to the Internet, starting early next year.
Ford is negotiating an agreement with Oracle Corp., the world's largest database company, to form AutoXchange, a joint venture to build an online purchasing network. Ford said it will own a majority stake in AutoXchange.
Meanwhile, GM signed an agreement with Commerce One Inc. - a developer of electronic commerce Web sites - to create a virtual marketplace for parts, goods and services. The partners will call it GM TradeXchange.
Internet purchasing has the potential to cut costs dramatically, reduce paperwork and speed negotiations. Internet technology is particularly attractive to automakers and suppliers who manage operations around the clock all over the world.
The Ford and GM announcements last week involved partnerships with software companies that create cyberspace purchasing bazaars where buyers and sellers come together online to do business.
The software enables point-and-click purchasing at all levels of a company, allowing everyone from a purchasing vice president to a tool crib manager to buy goods online. Connected to the Internet, the software lets manufacturers extend their reach from dealers to lower tier suppliers to do business. Suppliers also could use the same system to manage their vendor networks.
AutoXchange and GM TradeXchange are expected to be in operation by early next year. The two automakers' existing Web-based supplier networks - Ford Supplier Network and GM SupplyPower - will work in concert with the new sites or eventually will be merged into the new networks.
Over time, AutoXchange and GM TradeXchange will handle a growing volume of purchasing for production parts and nonproduction goods and services. Even the purchase of complex parts that require long lead times and extensive engineering, such as seats or instrument panels, could be handled online once the components go into production.
With AutoXchange, Ford will have an online network that will communicate with thousands of global suppliers. The joint venture will charge suppliers fees based on the size of their transactions with Ford.
Because Ford spends about $80 billion annually with suppliers, those fees could top $1 billion within the first 18 months and $5 billion within five years, said Oracle President Ray Lane during a press conference at the Specialty Equipment Market Association's trade show last week in Las Vegas.
Oracle, of Redwood Shores, Calif., and Ford will split the profits from the joint venture.
Ford President Jac Nasser said the network is designed to save suppliers money, not soak them for more. Companies will not be required to join, but 'we think suppliers will see it as a benefit in the near term and the only way to do business in the long term,' he said.
The Ford-Oracle deal is Nasser's second major alliance with a software maker in six weeks. In September, Ford said it would take a minority ownership stake in CarPoint, the Web shopping site owned by Microsoft Corp. of Redmond, Wash. Ford wants to evolve CarPoint into a Web site that lets shoppers order and track vehicles. Eventually, real-time sales data could be transmitted into Ford's supply network, providing parts makers with better data for production forecasting.
NO MORE HODGEPODGE
AutoXchange, which Ford and Oracle hope to market to other automakers, is designed to organize the hodgepodge patchwork of communications Ford uses to place parts orders, track shipments and inventories, and make payments.
'Nobody in the automotive supply chain can tell you what you bought and sold today,' said Brian Kelly, president of Ford's Global E-Commerce unit. 'The industry is full of fragmented systems with disjointed communications.'
One way is by slashing the lead time for parts orders, which take up to a month to process. With the network, suppliers will have their orders within seconds. They will know what Ford needs and when, enabling them to reduce inventory and waste, Kelly said.
Ford could cut its procurement costs by up to 20 percent and suppliers will see similar cost savings, Kelly added.