Clearly the automotive industry is in the midst of a major restructuring. What is unclear is what structure its new form will take. The Internet is definitely altering business-to-business (B2B) relationships. Four contenders fighting for dominance are:
- The mega hub (namely Covisint)
- Private exchanges
- Niche, third party marketplaces
- The extended enterprise.
All four contenders are in hot pursuit of the same goal—capturing the most number of active, daily B2B users. Sextant Research estimates that the total available market is in excess of 200,000 users in North America alone. Covisint, the original equipment manufacturer (OEM)-led consortium, expects to have 100,000 users after its first year of operations.
Among the four contenders, the first to capture over 100,000 users will probably eliminate at least two of the competing contenders. The four offer strikingly different topographies and models for uniting the auto industry through the Internet:
- In the mega hub approach, Covisint, aims to be the central hub for the entire auto industry. Procurement, collaborative design/engineering, and supply-chain management will all flow this single hub. It is impossible to ignore Covisint since its OEM masters dominate the industry. If they truly insist on this approach Covisint will, indeed, become an industry powerhouse. Secondly, Covisint could go public and raise many billions of dollars for its OEM owners: Ford, General Motors, Daimler-Chrysler (DCX) and Renault/Nissan. Disadvantages for Covisint are high coordination costs and its lumbering, often contentious owners.
- The second contender, a private exchange, is dominated by a single manufacturer. That OEM or large supplier owns the private exchange, which serves as a bridge to all its major suppliers. The big advantage for a private exchange is that only one company is in the driver's seat. Its coordination costs, therefore, are much lower than in the mega-hub model. Volkswagen, for instance, operates a private exchange supplied by i2 Technologies, Ariba, and IBM. Disadvantages to a private exchange is that it is still likely to be rolled out at a plodding pace. Big manufacturers are notoriously slow at introducing business innovations. Suppliers, likewise, are likely to have to construct unique interfaces to each OEM in the private-exchange model.
- In the third approach, third-party, niche marketplaces, an Internet vendor is in the central role, connecting suppliers and OEMs. These vendors provide more specialized marketplaces, for instance, for steel purchases only, inventory management only, indirect-parts procurement only, or aftermarkets order fulfillment exclusively. Example e-marketplaces for each of these categories are eSteel, Grainger.com, SupplySolution, and iStarExchange, respectively. The advantages to the niche, third-party approach are that they are much simpler to implement. They typically have a low-entry cost, and they offer fast payback. Two big disadvantages are their limited functionality and the plethora of interfaces each manufacturer must build to handle dozens of marketplaces that each firm may participate in.
- The last contender, the extended enterprise model, dispenses with intermediaries altogether. Instead, it extends the functionality of existing, installed systems to embrace trading-partner practices through the Web. Examples include MySAP.com, Brain's SupplyWeb, and Future 3's Eclipz. A significant advantage to this approach is that it best integrates trading partners into the core, corporate information systems (IS). Furthermore, it typically taps a manufacturer's long-time IS vendors to provide the new capabilities. A disadvantage to the extended enterprise model is that it builds on an older architecture – one fixed far before the advent of the Internet. Those legacy enterprise resource planning systems (ERP) and computer-aided design (CAD) systems were never structured to offer the 24/7/365 availability, security and other characteristics of Web-based systems.
Manufacturers must closely monitor all four of these contenders. Only by doing so can a firm align with the approach the industry will ultimately select as the dominant model. It's important to track not what OEMs say, but rather what they do. At least weekly an OEM or supplier organization some place in the world selects one of these four contenders for a specific pilot and vehicle program. DCX's FastCar program, for instance, is unfolding as a private exchange. Its continued growth certainly suggests weak backing by DCX for Covisint, a competitor to the private-exchange model.
Nevertheless, every manufacturer must plan for a Covisint to become an influential player. The best approach may be a dual strategy: that is, one with Covisint and another without it. If current IS projects are designed to be most flexible, then a manufacturer will be able to most readily retrofit them to accommodate whatever model ultimately predominates over the next one to two years.
For instance, applications should be transport independent. This means that trading-partner data may come either over the public Internet, ANX, or TCP/IP transparently. In sum, every auto industry firm today must monitor the footrace among these four contenders. In addition, manufacturers that do not “hardwire” their systems to particular exchanges and transport mechanisms will be able to most quickly switch if necessary to a different model if another proves to be the industry's favorite and standard.