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Commentary: Covisint has hurdles, but payoff could be grand

The automakers' online marketplace is a huge, technically difficult and expensive undertaking, but the potential reward is nothing less than spectacular.

By Thilo Koslowski, Gartner Analyst

Driven by intense competition and razor-thin profit margins, the auto industry is embracing e-business at every level, from the executive suite to the factory floor.

See special report:
Head-on collision
The major automakers are introducing e-business initiatives--from e-tailing sites for consumers to Web portals for employees--at breakneck speed. One of the most important of these new initiatives is Covisint--the online supplier marketplace from DaimlerChrysler, Ford and General Motors.

Covisint was created to streamline the automakers' business processes--and cut costs--by connecting them directly to their more than 30,000 suppliers. It is a huge, technically difficult and extremely expensive undertaking, but the potential payoff is nothing less than spectacular.

The first reward for the automakers will be more efficient procurement: getting components from the suppliers on schedule and on budget, and reducing production delays and inventory costs. The second benefit, somewhat further down the road, will be the creation of a truly collaborative product development process. But the ultimate payoff--the Holy Grail for the automakers--will be the ability to deliver a built-to-order vehicle.

That goal--enabling auto buyers to order a vehicle built exactly to their specifications directly from the factory--is probably five to seven years away. But when it happens, it will enable the automakers to save staggering sums of money. $20 billion per year for General Motors alone, according to some industry estimates. It will also enable the automakers to respond much more quickly to buyer demands, which are changing more rapidly than ever before.

The automakers are already well integrated with their first-tier suppliers, the companies that deliver large components like complete dashboards. The challenge for Covisint will be to connect efficiently and rapidly with second- and third-tier suppliers, those that produce smaller components and raw materials. Many of those suppliers are barely conversant with telephones and faxes, let alone being able to work at Internet speed. So, bringing them onto the Internet and into the supply-chain management fold will be no simple task.

There are other challenges, too. Not the least is the competitive marketplace that Volkswagen, the largest European auto manufacturer, is planning to introduce. If Volkswagen goes ahead with its plans, suppliers--many of which produce components for Volkswagen as well as for some of the partners in Covisint--will have to deal with two separate marketplaces with nonstandard requirements and specifications. This will probably slow down Covisint's chances of being competitive.

Nonetheless, Covisint has impressive strengths. Not the least is its creation by partners with very deep pockets that have committed enormous resources. Most important is that Covisint's basic concept and raison d'être make perfect sense and are inevitable. The automakers have recognized a simple, self-evident fact: their futures depend on it. The automakers driving Covisint have recognized that their survival depends on successfully achieving e-business transformation--and they are determined to make it happen.

(For related commentary on supply-chain management and where it is headed, see TechRepublic.com-- free registration required.)

Entire contents, Copyright © 2000 Gartner Group, Inc. All rights reserved. The information contained herein represents Gartner's initial commentary and analysis and has been obtained from sources believed to be reliable. Positions taken are subject to change as more information becomes available and further analysis is undertaken. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of the information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof.