Not long ago, large automotive manufacturers believed they had discovered the Holy Grail of supply chain efficiency: online auctions. Inspired by the dot-com bubble and convinced that auctions would significantly expand the global supplier base, increase supplier competition and dramatically drive down costs, General Motors, Ford and Daimler/Chrysler all poured tens of millions of dollars into online exchanges.
The big three automotive OEMs invested an estimated $500 million into Covisint LLC, a joint venture that, among other things, featured online auctions and procurement tools. Ford sank an estimated $200 million into its own online procurement and auction project, dubbed Everest.
Then the Grail sprung a leak. While many larger tier one automotive suppliers embraced the exchanges, thousands of smaller suppliers did not -- they were convinced that the auctions were little more than thinly-veiled attempts by the OEMs to play suppliers off against one another, drive down costs and erase supplier profit margins. Growth slowed and, a year ago, the big three OEMs split up the Covisint joint venture, selling the auction business to Freemarkets Inc. (later acquired by Ariba) and the messaging infrastructure business to software vendor Compuware Corp. Last summer, Ford announced it had shut down the Everest project, blaming internal change management and external supplier enablement problems.
"Suppliers saw the auctions as a tool to be used by the OEMs to bring in bidders from Taiwan and China and drive down the price points of existing suppliers," says Kevin Mixer, research director at AMR Research Inc. in Detroit. "Finally the OEMs realized that what they were really auctioning off was the good will and relationships with their suppliers. The auctions damaged some supply chain relationships."
Automotive partners are now attempting to undo some of the damage by launching a wide range of technology-driven initiatives aimed at supply chain collaboration rather than confrontation. Intended to streamline a wide range of processes, including supply chain visibility, product development and strategic sourcing, these initiatives -- unlike the divisive auctions -- are being mainly driven from the bottom up by suppliers.
The Automotive Industry Action Group (AIAG), for example, is a trade group undertaking a series of technology-based standards initiatives, which are supported by automotive OEMs, suppliers and technology vendors. The Inventory Visibility & Interoperability (IV&I) Project is the one that's farthest along.
Intended to improve inventory visibility throughout the supply chain, the IV&I Project will allow suppliers to use any software tool that complies with the standard to get online access to inventory-level information at customer and supplier sites.
Currently, many OEMs and some tier one suppliers require that their suppliers use a specific software tool such as the Supply Visualization tool from QAD Inc. (Carpinteria, CA) to track manufacturing inventory levels. Unfortunately for suppliers, the tools and processes required by OEMs for tracking inventory are different. So suppliers are forced to support and use multiple tools and processes to keep on top of inventory levels.
Different Strokes
That leads to mounting inefficiencies as supply chains lengthen. According to a recent study by AIAG, useful supply chain visibility information, on average, takes a week to trickle through each tier in the supply chain, says Pat Snack, a General Motors executive working on the IV&I Project. It estimates that the IV&I Project could save automotive manufacturers and suppliers $255 million each year by eliminating those inefficiencies.
The IV&I Project is focused on establishing common business processes, a common data model and common messaging and message content standards that would allow suppliers to use any compliant tool to gain inventory visibility up or down the supply chain. The initial focus is to give suppliers visibility into the min-max inventory information tracked by manufacturers.
IV&I specifies the use of Web-based transport and content standards, including the electronic business eXtensible markup language (ebXML) standard from the Organization for the Advancement of Structured Information Standards. Participants have completed proof-of-concept work, and vendors such as QAD expect inventory visibility software to begin to incorporate the standards in the next six to 12 months.
With the IV&I Project gaining momentum, AIAG has begun to work on more standards that could lead to better supplier-manufacturer collaboration and improved automotive industry productivity. One such standard could help automotive manufacturers and suppliers exchange information produced by their kanban processes. Another would create standards allowing manufacturers and suppliers to more easily exchange information about the specific sequence in which manufacturers need to receive parts and subassemblies.
ArvinMeritor Inc., an $8 billion maker of vehicle components, is eager to latch onto standard processes and tools that it can use to collaborate with its customers and suppliers. The Troy, MI, company is actively working with other automotive suppliers such as Delphi and Lear, as well as technology vendors such as QAD, to move AIAG's kanban interoperability standards along, says Steve Woerner, the company's senior B2B specialist.
"We want to get to one truly standard way of exchanging data up and down the supply chain," says Woerner. "Right now, a lot of us have to log onto a lot of different places to exchange data."
Recently, for example, ArvinMeritor rolled out an electronic kanban system in one plant, partly in response to a requirement from a major customer, Daimler/Chrysler. That system uses EDI to exchange information with Chrysler. As other customers begin to demand kanban information, Woerner says, ArvinMeritor wants to avoid having to support multiple tools, communication protocols and business processes.
"If we could get to a standard set of transactions and some tools that support those, we'd save a lot of money and be more efficient," says Woerner.
Such enhanced collaboration is increasingly critical, say experts, as the automotive supply chain becomes more complex and difficult to manage. Product lifecycles are shortening as manufacturers try to rush new models to market. At the same time, as they include more electronics, vehicles are becoming more complex to build.
"General Motors has over 100 programs in launch phase right now," says Martin Piszczalski, principal analyst at Gartner G2 in Ann Arbor, MI. "Combine that with the shear complexity of those programs and the fact that manufacturers are outsourcing more production of more subsystems to suppliers, and you end up with a supply chain that is very difficult to manage. It requires more and more collaboration."
But stepped up collaboration efforts between automotive OEMs and suppliers aren't limited to supply chain visibility processes. Manufacturers and suppliers also are increasingly intent on automating the exchange of information about critical product development and quality monitoring processes. Large OEMs such as Ford and Daimler/Chrysler, for example, have mandated that suppliers begin to use secure online virtual private networks such as Powerway.com from Powerway Inc. (Indianapolis) to feed product development and quality information to them. In turn, suppliers have begun to deploy technologies such as product lifecycle management (PLM) systems in order to track, report on and analyze key development and quality metrics.
Fruedenberg-NOK, a general partnership in Plymouth, MI, for example, has deployed PLM software from Aras Corp. (Lawrence, MA) to track and report on quality and development processes, and feed required information to large OEM customers. Fruedenberg, a $1 billion maker of automotive sealing and vibration control systems, has 20 development groups and several thousand products to manage. Before OEM customers started asking for development and quality data, however, "all of that information was managed in Excel spreadsheets," says Tom Gill, the company's director of CAE technology and support. "There wasn't a consistent view of that information across the company."
As part of the PLM deployment, Fruedenberg defined the 60 or so steps it takes to develop a product, from RFQ to launch, using an automotive industry standard known as the Advanced Product Quality Planning framework. Fruedenberg uses the PLM software to allow product managers to track when each step is due, and to check it off once it's completed, and company executives to track the status of each program and spot problems. Fruedenberg also used it to generate reports that are delivered to customers using secure networks such as Powerway.
"It's all about making sure stuff doesn't fall through the cracks," says Gill. "We and our customers can see red flags when they develop. And that way we can both avoid shutting down an assembly line."
Strategic sourcing has emerged as another critical process around which automotive manufacturers and suppliers are collaborating more closely. As the cost of raw materials -- particularly steel -- has soared over the last few months, automotive manufacturers have taken on a larger role in coordinating purchases in their supply networks. In doing so, they hope not only to drive down costs by consolidating buys, but also to improve the quality and availability of raw materials.
Steel Days
Delphi Corp. (Troy, MI), for example, in March launched what it calls a Steel Management program under which it will take responsibility for procurement of the steel used by suppliers. Suppliers will use a Web-based ordering system to specify their materials needs. Delphi will execute the transactions using the coordinated network procurement (CNP) application from Newview Technologies Inc. (Fort Worth, TX). The application uses EDI to communicate specifications and pricing, and it will integrate with Delphi's financial system for payment and settlement.
"By taking control of sourcing our raw materials and partnering with specific raw materials suppliers and component suppliers, Delphi expects to see a more consistent quality level," says James Galonskia, the company's steel management program manager.
The approach should also allow Delphi and its customers to win what Galonskia says has been a constant battle in the last few months to maintain a steady, predictable flow of steel for production. "With Delphi taking on the risks associated with today's volatile steel market, our suppliers will be able to focus on what they do best -- producing high quality components," says Galonskia.
While such initiatives indicate that automotive manufacturer-supplier collaboration is on the rise, the industry still has a way to go. Large OEMS, says Piszczalski, must align their internal processes with these standards before they can take off.
But at least some of the damage done by the online auction era is being overcome. "Automotive manufacturers are finally seeing their supply chains as something more than just a necessary evil," says AMR's Mixer. "They are slowly accepting the need to collaborate. And that's helping the scar tissue to heal."