Big Three Exchange May Not Be Sole Purchase Network

Suppliers plan to use trade exchange, but won't abandon their own online initiatives

A battle between Ford and General Motors late last month to dominate online purchasing in the auto industry morphed into a collaboration among the Big Three automakers, which joined forces to form a business-to-business Web-based trade exchange.

While industry watchers applauded the move, a sampling of parts makers and other players in the multibillion-dollar supply chain said they will continue pursuing their own online procurement projects as they look to participate with Ford Motor Co., General Motors Corp. and DaimlerChrysler AG.

Analysts lauded the move to consolidate trade systems and trim the fat from the Big Three's combined annual procurement bill of $240 billion. Analysts said the automakers -- GM in Detroit, Ford in Dearborn, Mich., and DaimlerChrysler's Chrysler division in Auburn Hills, Mich. -- are notoriously inefficient manufacturers. By reducing procurement costs by an estimated 5% to 10%, they could save billions.

"The car assembly business of U.S. automakers is not doing well in terms of profitability and (is) losing market share," said analyst Hiro Mori at Automotive Consulting Group Inc. in Ann Arbor, Mich. "Their profits are coming from auto loans, financial services and those types of things. There are billions just sitting on the dealer parking lot or (being) wasted processing orders for supplies."

Yet getting auto suppliers and subsuppliers, who themselves annually purchase between $250 billion and $500 billion in supplies, to use the Big Three's exchange as their purchasing network, is not a given. A number of these suppliers said they will participate in the Big Three's exchange but that they have no plans to scrap their own online sales and procurement initiatives.

Ready, Set, Trade

Automotive axle, driveshaft and piston ring maker Dana Corp. plans to trade on the exchange. The Toledo, Ohio-based manufacturer conducted more than $3 billion of its business, or almost one quarter of its reported $13 billion in revenue last year, with Ford and DaimlerChrysler. Still, Dana intends to continue developing its own procurement exchange with software from Ariba Inc. in Mountain View, Calif.

"If a customer asks us to bid on their exchange, we'll work with them," said Gary Corrigan, vice president of corporate communications at Dana. He said Dana, which supplies machinery to the construction, industrial and agricultural sectors and to other automakers, does business that may fall outside the scope of the Big Three's trade exchange. Dana also wants to cut procurement transaction costs with its own 86,000 suppliers.

"There are a lot of manufacturers out there that we make products for. If a product is available and the price is superior, we will go (to the Big Three) for another customer. But we have a lot of highly engineered components that would not show up on the exchange," Corrigan said.

Business-to-business office product supplier Boise Cascade Office Products Corp. in Itasca, Ill., has had an e-commerce site for conducting business with its customers and suppliers since 1997. "We are happy to try to provide access to our products to our customers in whatever system they opt to use," said Terry Kallen, manager of emerging technologies. "We have developed an in-house electronic cataloging system that does not make the process totally painless, but it makes it doable so that we can be responsive in different formats."

Kallen said her department fields four to five requests each week from customers and e-commerce sites seeking Boise Cascade's participation in a new online system. "We're not out shopping for these opportunities. They're coming to us fast and furious."

"The Tier 1 suppliers have an interest in pursuing separate exchanges that are supply-chain-facing," said Kevin Prouty, senior analyst at AMR Research Inc. in Boston. "My advice to them is: If you can get it done in the next six months, do it. It will pay for itself. Most of them could not wait for the automotive OEMs to make a decision and went ahead and did it."

Automating Procurement

Other suppliers without an electronic network of their own, such as Robert Bosh Corp. in Broadview, Ill., and Ball Machinery Sales Ltd. in Guelph, Ontario, said the network would help cut costs by automating the procurement process with Ford, General Motors and DaimlerChrysler.

Gary Ball, president of Ball Machinery Sales, deals in used equipment. He bought $400,000 in stamping equipment through GM's TradeXchange in December. "I'll be able to deal with all three under one network," Ball said. "Now, I spend $3 million at Chrysler, then spend a few million at GM the next day. It's demanding on my cash flow."

GM plans to flex its muscle with automakers such as Sweden's Saab Automobile AB and Isuzu Motors Ltd. in Tokyo, in which it holds equity stakes. Ford officials said partner Mazda Motor Corp. in Hiroshima, Japan, would participate. But DaimlerChrysler officials were reluctant to make a commitment on behalf of subsidiary Freightliner Corp. in Portland, Ore.

Peter Weiss, an electronic-procurement project director at DaimlerChrysler, said, "This new company will have to earn the business, and if it's not good enough, the business will not go there."

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