DETROIT - As Ford Motor Co., General Motors and DaimlerChrysler create the world's largest online purchasing company, they also are trying to allay fears in the supplier community.
And those fears aren't going away.
Suppliers and e-business gurus from Ford, GM and DaimlerChrysler discussed the new company and its impact during a four-hour session last week in Detroit. The session was sponsored by the Original Equipment Suppliers Association and Ernst & Young LLP.
The three automakers announced Feb. 25 they are developing a single, global portal to conduct purchasing and other business with their suppliers and dealers on the Internet.
At last week's session, the three partners said if they do not take the lead, a Web site company would swoop in and do it for them.
But suppliers had concerns about security, their potential for savings and the creation of a culture that would undermine quality.
'With the great power and influence of the Web companies, we felt that we would be remiss if the automotive industry did not stand up and take charge of what our collective future would be,' said Alice Miles, president of Ford Business to Business, the ConsumerConnect unit overseeing its auto-xchange.
Before the three joined forces in this venture, Ford was developing and using its auto-xchange to buy production parts and commodities. Ford recently held a reverse online auction to purchase tires for a future truck platform. GM has been using its new TradeXchange for purchasing and for auctioning old industrial equipment. DaimlerChrysler was creating its own exchange.
'If we sat back and waited, somebody would step in,' Miles said. Now the three automakers can work with the suppliers and create an exchange that satisfies everyone's needs, she said.
Since Ford and GM unveiled their plans in November for separate online purchasing exchanges, suppliers have feared the worst.
Suppliers thought they would have to deal with three or more separate online purchasing exchanges, each with different requirements and equipment. It reminded them of how they often have to use different and costly CAD/CAM systems to exchange drawings with the automakers.
'We know we've done that in the past,' Miles said. 'This is an attempt to stop doing that.'
That sound from many suppliers after the Feb. 25 announcement was a collective sigh of relief, said Neil De Koker, managing director of the Original Equipment Suppliers Association in Troy, Mich. By joining forces, the automakers will not have different systems and expectations, De Koker said.
'The relief was heard around the world,' said A. Alan Turfe, executive director of GM's TradeXchange.
Nevertheless, suppliers aired many concerns during last week's session. Clearly the uncertainty of this new way of doing business has many of them on edge and scrambling to put together an e-business strategy.
Dana Corp. is not convinced here is any justification for this new exchange, said Jim Woodward, Dana's director of e-commerce. 'Strictly from a procurement standpoint, we're still kind of at a loss as to what the business reason is,' he said. 'We're waiting to hear what the actual model is going to look like to justify us joining that.'
Woodward said this must be a win-win situation for automakers and suppliers. The automakers probably will have to get to some sort of target-pricing methodology, he said.
'If we meet a target price ... get the business and are able to (reduce costs) below that target price, then we get to keep that money for our shareholders as opposed to having to pass everything on,' Woodward said.
Do the three automakers intend to merge their purchasing departments?
The individual purchasing departments will continue to exist, but with strong links to the new company, Ford's Miles said.
'This is not an attempt to blend and bring all of that together,' Miles said. The purchasing departments 'will continue to have their own say on governance, supplier participation and the way they deal with supplier relationships. That constitutes a strategic or competitive advantage for each of us. What we will be bringing together, though, is a collective effort to work on a single exchange and to create industry standards.'
Will bids be confidential? Will the system be secure?
'Suppliers told us that an independent company would go a long way in alleviating those fears,' Turfe said. 'We need an independent company, and it must be spun off, too.'
Ford, GM and DaimlerChrysler plan to have an equal stake in the new company that will operate the exchange. They are looking for an Asian anchor to join them, Turfe said.
Will suppliers be able to take equity stake in the new company?
They will have to wait for an answer.
'It's something we actually spent a lot of time doing some work on,' Miles said. 'I don't think we're prepared to give any details out today, but I can assure you, the idea is alive and well and we should be back to you fairly shortly with an answer.'
How will the new exchange ensure that low bidders also provide quality, reliability and delivery.
'The individual processes that we use to qualify our suppliers to allow them to bid are not going to change,' said Raymond Pollard, director of global strategic alliances with GM's TradeXchange. The online auctions are just another tool that can be used for the proper types of commodities, Miles said.
'There are certain commodities that lend themselves very well to using this tool,' she said. Both automakers and suppliers will soon learn where it makes sense to use this tool, and where it does not, Miles said.
This is not a secret weapon to beat the suppliers over the head, said Peter Weiss, executive director of e-procurement strategies for DaimlerChrysler.
'We're trying to connect the supply chain, trying to connect the tiers beyond you and trying to get into a collaborative effort,' Weiss said.
Within the next 90 days, the automakers will complete a legal structure of the new company and plans for an initial public offering of stock, Turfe said.
The automakers hope to have the new exchange running by the end of June.
'We need to have some operating results rather quickly if we want to IPO very fast,' Turfe said.
Meanwhile, Ford will continue to use its auto-xchange and GM its TradeXchange.
Oracle and Commerce One will be the architects of the Internet-based purchasing system. But the automakers also will create a technology board to look for the best technology in the world, Miles said. Oracle is a partner in Ford's auto-xchange, and Commerce One is a partner in GM's TradeXchange.
Discussions with both Oracle and Commerce One have gone well, Miles said. While Ford, GM and DaimlerChrysler do not want to turn the exchange over to the technology partners, they want them to be deeply involved.
Said Miles: 'They bring a wealth of knowledge of other industries that we don't have in the automotive industry.'