E-Marketplaces

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February 12, 2001 (Computerworld) -- In just about every industry - from automobile manufacturing to chemical production - an electronic marketplace has been created to handle the buying and selling of goods and services between manufacturers and suppliers. One common bond that unites these markets is the hope that the automation of exchange processes will dramatically cut time, cost and waste.

One thing's for sure: Such marketplaces are big business. Cambridge, Mass.-based Forrester Research Inc. estimates that trading in Web-based markets accounted for $251

ONLINE AUTOMOTIVE MARKETPLACE: Covisint is expected to handle more than $240 billion in annual procurements of raw materials and vehicle parts that will make their way to the assembly lines of the Big Three Automakers, like this one at a DaimlerChrystler plant in St. Louis.

But while technology is a key enabler behind the scenes, one of the biggest challenges online market creators face is in translating paper-based processes to more efficient, electronic approaches.

For example, contracts that involve complex sourcing or parts designations may require detailed interaction between the buyer and seller outside of the e-marketplace. The buyer may even disclose engineering specifications, delivery timetables and other sensitive data to the marketplace's participants. But instead of shuffling purchase orders back and forth or faxing production schedules, various procurement steps can be handled electronically.

Several of these virtual bazaars have been founded by buyers.

A prime example of that is Covisint LLC, a business-to-business e-marketplace created by Ford Motor Co., General Motors Corp. and DaimlerChrysler AG last February. The automotive exchange could potentially handle more than $240 billion in annual procurements of raw materials and vehicle parts by these manufacturers alone.

One-Stop Shopping

Before e-marketplaces began popping up last year, "buyers were tied to a single supplier or a handful of suppliers over tightly controlled extranets," says Daniel Garretson, an analyst at Forrester Research. "Now, with e-marketplaces, they can do one-stop comparison shopping across thousands of suppliers and go to the best source in real time or near real time."

With a slowdown in vehicle sales predicted for this year due to the softening economy, the Big Three automakers have placed increased pressure on their 150,000 suppliers to reduce costs.

Detroit-based GM plans to reduce the average cost of processing a purchase order from $100 to $10 by using Covisint. The world's largest automaker spends more than $80 billion in procurements each year, so even a minor improvement in how these activities are handled could save the company billions.

Most of the big automotive suppliers acknowledge that they'll work with Southfield, Mich.-based Covisint, but that hasn't stopped them from creating e-marketplaces of their own. Johnson Controls Inc., a manufacturer of car parts and environmental systems in Milwaukee, plans to launch a design and collaboration exchange for its 600 suppliers next month.

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