Head-on collision
Covisint, the business-to-business exchange backed by the Big Three U.S. automakers, is providing inspiration and a harsh view of reality for the many industries venturing into online marketplaces.
 | Old and New Economies clash in auto industry marketplace
By Rachel Konrad
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Tired of being ridiculed as corporate Luddites at the dawn of the digital era, leaders of the U.S. auto industry saw an opportunity to harness the power of the Internet and create an online company that Wall Street would value as a technology player. In one bold stroke, the creation of a massive online business exchange would let the Big Three automakers--General Motors, Ford Motor and DaimlerChrysler--catch up with the rest of the world.
The system that has become known as Covisint--standing for Cooperation, Vision and Integration--could do better than even the score: Founders envisioned it as an Internet leader, a gigantic eBay-like bidding and purchasing system for every business that sells products to the sprawling car industry, from paper to petroleum.
Or so they thought. Covisint has taken on the characteristics of a curse ever since it was created, having experienced nearly every kind of problem imaginable. Widely viewed as the ultimate test of all business-to-business exchanges because of the automobile market's size and complexity, the experiment is providing both inspiration and a harsh view of reality for the many other industries venturing into online marketplaces.
Challenges: Detroit reinvents the wheel
At first, it made perfect sense: a central bazaar that simplified
transactions for thousands of companies. But barely a few weeks after it
was created, Covisint became mired in internecine politics, foreign
opposition, federal scrutiny and sniping from within its own ranks.
Technology: Wiring a brick-and-mortar world
Few argue that an online exchange to streamline transactions is an unworthy
goal. In a business that has been historically slow to accept change,
however, a venture as complicated as Covisint may be as adoptable as
electricity in the Stone Age.
Culture: Fear of the unknown may be the worst
Dealing with threats is a way of life in the U.S. auto industry, from angry
work forces to international competition or cross-town rivals--and technology is no different. Overcoming this bunker mentality may be one of Covisint's biggest challenges.
Go to: Challenges: Detroit reinvents the wheel 
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| Challenges: Detroit reinvents the wheel On a blustery February day not far from the world's automotive capital, four men locked themselves in a hotel suite and vowed not to leave until they had drafted a plan that could forever change the multibillion-dollar car industry. Secrecy was paramount at the extraordinary meeting, for its participants represented bitter enemies whose mere cooperation might be seen as a threat by government regulators, labor unions or even their own companies. In attendance were Harold Kutner of General Motors, Brian Kelley of Ford Motor, Ray Lane of Oracle and Mark Hoffman of Commerce One. "We were euphoric but skeptical," said Lane, who resigned as president of Oracle in July to become general partner at venture capital firm Kleiner Perkins Caufield & Byers. "The euphoria was that the three biggest OEMs in the auto business could get together and create more than $300 million in liquidity. The skepticism was that everyone in the room was a competitor. Everyone wanted the same goal and felt it was a good idea, and we wanted to forget our competitive juices, but when it came to putting it on paper it was tremendously difficult to do."
The perseverance paid off: What emerged was an outline for a business proposal of staggering proportions, a central marketplace for parts auctions and project collaboration among as many as 40,000 companies that did business with the automobile industry, from paper clip manufacturers to multinational
Most amazing of all, the entire operation would be conducted on the Internet. Beyond its unprecedented scope, the venture is a symbolic marriage between the Old and New Economies. Perhaps more than any other industry, the American automobile business is known for an entrenched resistance to change shared by generations of company executives--often from the same families. The idea of moving entire operations to a single electronic system, let alone those as important as parts purchasing, would have been unthinkable only a few years ago. But the visionaries behind Covisint knew that something needed to be done to wake the auto industry out of its smokestack mentality and ensure a place in the digital future. Partnered with Oracle and Commerce One, they hoped the project would inject new cash and clout into a 100-year-old industry known more for stultifying bureaucracy and labor strife than for swift production and high profit margins. "It is absolutely revolutionary," said David Cole, director for the Center of Automotive Research (CAR) in Ann Arbor, Mich., whose father was president of GM in the 1970s. "At its deepest levels, Covisint is a redefining of how you think of an independent organization, how you structure a company, and how you create a whole different business model enabled by e-commerce." If that weren't enough, the ambitious plan carried ramifications far beyond the car industry as a major test for business-to-business exchanges, enormous online malls where buyers and sellers of practically any type of product can find each other regardless of size and location. From Wall Street to Silicon Valley, Covisint is viewed as a model of how the Internet can wring out waste and bring in higher profits.
"Trying to get them to agree on anything is going to be difficult, and I'm not convinced Covisint will succeed," said Dennis Virag, president of the Automotive Consulting Group in Ann Arbor. "The devil is in the details." Although carmakers need some vehicle to automate purchasing and collaborate on projects, companies and analysts in various industries question whether Covisint is the appropriate solution. Many midsize suppliers--the companies that will buy and sell products online and provide the backbone of Covisint--are highly skeptical about the project. Unfamiliar with the Internet, some suppliers worry that security holes will allow competitors to see their pricing structures and parts diagrams. Others view Covisint as a means of reversing the power automakers gave to suppliers in the 1980s, when the industry began outsourcing work to cut costs during Detroit's dark days at the height of competition with Japan. Most automakers today design and assemble the car and provide a few key components, such as the engine, transmission and sheet metal. Suppliers make almost everything else. Because the automakers don't make those commodities, they don't know exactly how much they cost. Shifting procurement to online auctions, where suppliers bid down contracts by offering prices as close as possible to cost, would allow the carmakers to better estimate the actual costs of parts and use this information against the suppliers, according to Covisint's detractors. "It's a question of, 'What do you want me to give up?" asked the founder of a 50-person supplier based in Monroe, Mich., just south of Detroit. Like numerous small suppliers, he didn't want his name used because he didn't want to incur the wrath of the larger suppliers and automakers that back Covisint and buy his products. "If I can afford to turn off the heat in the office, I can afford a small fee," he said. "If I can go without paying a few workers, I could also afford it.'" Only two months after the venture's announcement, Toledo, Ohio-based supplier Dana spearheaded an effort with five other suppliers to create a rival e-commerce marketplace. In a slap to the automakers' technology partners, Dana picked Ariba--a competitor of Commerce One and Oracle--to power the venture. The renegade effort died within a month when auto executives sent letters to top suppliers offering financial incentives for their participation in Covisint. But other obstacles were challenging Covisint on the technology side. DaimlerChrysler, which joined the venture just days before it was made public, questioned the use of Oracle as the main provider of software to power the venture. The Stuttgart, Germany-based automaker preferred to use software from German provider SAP, a DaimlerChrysler supplier. That rift healed in June, when SAP invested between $250 million and $400 million to increase its equity stake in Commerce One. "This project has moved from sizzle-on-the-steak to a more realistic attitude that this is going to take a lot longer to accomplish than anyone thought," CAR's Cole said. "It won't happen at a fast pace because of the significant cultural transformations that have to take place. This industry is moving at 100 miles per hour, but it doesn't know exactly where it's going." Neither did antitrust regulators when they first heard of the project. The Federal Trade Commission began a high-profile investigation of Covisint in the spring, about the same time it was looking into antitrust issues involving online exchanges in the retail industry. Regulators were concerned that the automakers would use their combined clout to further cut margins in the difficult supplier market, where an operating profit of 2 percent is considered standard. The FTC cleared Covisint in September, as did the Bundeskartellamt, Germany's antitrust regulatory agency. But the red tape helped in forcing Covisint to delay the launch of its first auction services from May to early October. Even the project's name came under fire. It was originally dubbed "Covis," for Cooperation and Vision, but an independent naming consultancy had to regroup, fearing lawsuits from a German technology company of the same name that had already purchased the rights to Covis.de. After months of syllable crunching, the consultants came up with the turgid "Covisint," for Cooperation, Vision and Integration. For all its external obstacles, the project's most daunting opponent may be the auto industry itself. Auto executives acknowledge that it will be difficult for many salespeople, engineers and others to embrace the intangible nature of an electronic marketplace. Detroit has always produced physical products--such as the "Detroit metal" typified by the Ford Model T or the contemporary Dodge Caravan--which stand in stark contrast to the virtual wares peddled at an online mall. "Our biggest challenge is making a cultural transition from an automobile environment to an e-commerce environment," said Kutner, GM vice president for worldwide purchasing, who plays blackjack and golf on his handheld computer. "We have to be able to dream of what this company wants to be before we have a physical product." For many, that transition will be a painful one. Any discussion about the industry's future must involve Detroit's embattled labor unions, which have always been wary of technology as a potential way to replace workers and shrink the ranks of dues-paying members. The United Auto Workers (UAW), at best, is ambivalent about Covisint and, at worst, is downright paranoid that it's a front for shrinking the number of union jobs on the factory floor. Never having much affection for automotive executives, the UAW views those behind Covisint with a jaundiced eye.
UAW president Stephen Yokich recommended that GM fire one executive, Mark Hogan, or "put a muzzle on him" after he gave a peppy speech in 1998 about potential cost savings
"All start-ups go through growing pains," said the affable president of e-GM. Hogan wouldn't comment directly on the union's involvement but dismissed naysayers with a shrug: "I'd say they just don't get it." Such concerns have not been lost on those participating in the initial meeting that spawned the venture's concept at the Townsend Hotel in Birmingham, Mich., the Detroit area's equivalent to the Waldorf Astoria. But they insist that Covisint can be a winning proposition for all--including consumers, who would benefit from cost savings in more efficient operations. Indeed, many suppliers welcome the prospect of having to learn only one new procurement system instead of individual ones for GM, Ford, DaimlerChrysler, Renault and Nissan. Also working in Covisint's favor, the founding partners agreed to donate more than 250 employees of the 300 people who will work on the online marketplace, as well as fund the company to the tune of $100 million in the first year. As a result, the project's executives never worried about recruiting workers or soliciting venture capitalists as most other technology start-ups do. Even without such advantages, the potential of online exchanges alone is arguably enough reason to launch a project such as Covisint. Roughly 42 percent of corporate purchasing will be done online in 2005, compared with 3 percent now, according to Jupiter Media Metrix. The Automotive Consulting Group estimates that participating carmakers and suppliers could save $174 billion in 2005 through Covisint, which would represent a cost savings of roughly $3,000 per vehicle. "We've got all the benefits: a start-up mentality, a separate company in a separate building doing what they need to do," said Kelley, Ford's president of e-business. "But it's supported with founding partners that don't have a VC mindset (of) just looking for an exit strategy and a quick capital gain." Not everyone, of course, is convinced. Although he doesn't dispute the need to automate the automobile industry, auto industry veteran Virag evokes a different kind of New Economy metaphor. "A lot of dot-coms in the Silicon Valley thought they could make it, too," he said. "Let's put it this way: If Covisint were public, I wouldn't put my personal funds in it." | |
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chemical conglomerates. Despite its curiously awkward name--
1885: Mercedes-Benz co-founder Karl Benz debuts the
combustion-
in a Highland Park, Mich., factory that builds Model T's
in 84 distinct steps. The process requires newfangled machinery and modern
cutting tools to make the parts so precisely that a low-skilled laborer can
operate them, replacing the skilled craftsperson who makes and assembles
the parts by hand.
1947: Toyota Motor builds its first small passenger car, the | Technology: Wiring a brick-and-mortar world In an industry known for pyrotechnic product launches and $1 million holiday galas, the bombast surrounding Covisint's birth was noteworthy. At the annual World Automotive Congress, a required event for aspiring industry titans, William Clay Ford Jr. likened the Internet to the moving assembly line that his great-grandfather pioneered in 1913--widely considered the most revolutionary invention in the automobile industry. "The Internet is going to be the moving assembly line of the 21st century," Ford told reporters. "It's going to increase productivity, reduce loss, and surprise and delight customers that much."
Even Enrico Digirolamo, Covisint's chief financial officer and executive director of business development, acknowledges that an estimated 70 percent of the world's 30,000 automobile suppliers could not immediately participate in the online marketplace because they lack the required computing infrastructure. Research company Gartner estimates that the exchange will not be able to conduct more than rudimentary transactions until 2002, based on the complexity of the venture and its low-tech clients. The project has not been free of problems at the high end as well, as its software leaders have brought their own baggage to the process. Commerce One chairman Mark Hoffman, a West Point graduate, was a sworn enemy of Oracle for more than a decade. In 1984, Hoffman helped found database archrival Sybase, taking over as CEO in 1992. Hoffman could not be reached for comment on Covisint, but Ray Lane--who at the time of the exchange's founding was president of Oracle--said the software rift seemed even more bitter than the century-old divisions in the auto industry. "Every time Mark and I got together, when we got down to details, it turned difficult," Lane said. "We couldn't figure any ways to put the technology architectures together until that one breakthrough meeting at the hotel...Today Covisint is based on that architecture." Covisint has recently begun conducting auctions, but only between automakers and their handpicked, highest-volume parts makers--familiar companies known as "tier one" suppliers. Among that select group, only about 50 suppliers have learned the fundamentals and have agreed to participate. As smaller suppliers try to catch up, Covisint is already planning to expand into non-automotive products such as stationery and office chairs. The burgeoning online mall will connect to other marketplaces such as those in the oil and chemical industries, according to the project's marketing executives. It is this expansion, high-tech experts say, where things could turn ugly. "Having outlasted the hype around its creation, Covisint now starts the long road toward creating a viable business," AMR analyst Kevin Prouty wrote in a recent research paper. "On that road, Covisint must build a large company from the ground up, continue to contain partner conflicts, lay a complex technology infrastructure, and market itself to a group of skeptical and fearful suppliers. Outside that, it should be a piece of cake."
Although Oracle and Commerce One representatives tout marketplaces they
have created in such disparate
industries as aeronautics and vitamins,
If every company that sold material or services to the auto industry were to use Covisint, the system would crash immediately. Covisint executives carefully chose which suppliers would participate in the first auction in October, making sure they were fully wired and trained in time for the well-orchestrated grand opening. Covisint says roughly half of the auto industry, by volume, has agreed to participate in the exchange--including the largest suppliers, such as Lear, Johnson Controls, Visteon and Delphi Automotive. General Motors alone spends about $87 billion a year with 30,000 suppliers worldwide. Yet many of Covisint's potential clients--small suppliers who make such unglamorous but necessary items as grommets and fasteners--could not join in the bidding process because neither their office equipment nor their purchasing agents were equipped to participate. Digirolamo's own office, inside Covisint's temporary headquarters in Southfield, Mich., is a testament to the auto industry's relative lag in technology: It was not outfitted with high-speed online connections until a month ago. The company's 300 workers moved into the building and began conducting operations faster than local telecommunications providers could install lines. But Digirolamo is confident that suppliers will eventually adopt Covisint. If they don't, he said, they will waste money and resources while others learn to operate on Internet time. Several times during a one-hour interview, Digirolamo drew parallels between acceptance of Covisint and the push-button phones that replaced rotary dials. "We didn't switch until 1982 at GM," he said, waving his brushed bronze cufflinks emblazoned with a calligraphic "D." "I had to dial 40 digits to get to Uruguay. Once you switch to direct-dial, you can't go back. Covisint will be the same kind of transformation." Still, that comparison hardly does justice to Covisint's vast labyrinth of technology. The levels of Internet adoption between the farthest links in the auto-supply chain and Oracle are so distant that many experts are skeptical of Covisint's potential, at least in the short term. Whatever the limitations, Covisint's range of functions is staggering in theory, if not in real-world application. One central feature is the "reverse auction"--a process by which an automaker or large supplier solicits bids from competing suppliers online. The auction host must preselect a group of suppliers that are able to bid, and suppliers must demonstrate a history of quality and order fulfillment to be eligible. Once the group of bidders is selected, the auction host can go to Covisint's Web site and announce that the bidding has started. The host must specify a time limit on the auction--two hours or two months, for example--and bidders then begin submitting prices. The lowest bidder doesn't necessarily win the contract. Whether the supplier can produce the parts to a certain technical specification within certain time constraints and deliver the parts on a rigid schedule to a moving assembly line are other key factors. A supplier's on-time record during previous contracts may be considered as well.
Another Covisint mainstay is the "forward auction," implemented as an
eBay-like
If too many electric window motors are built for the new Ford Focus, why not sell them to another automaker for slightly less money instead of throwing them out or letting them take space on the factory floor? Buying and selling products could be only the beginning of Covisint's uses. If the system works as planned, it could be used to improve logistics in ways never imagined. For example, though reliable data is scarce, experts say one-quarter to one-half of all trucks that deliver parts to assembly plants return to their suppliers empty or only partly filled. Why not auction that empty truck space so that suppliers can transport more products throughout the industrial Midwest? After all, 75 percent of all suppliers are located within a 10-hour drive of Indianapolis, so lots of trucks must be making needless runs. Covisint technology is also capable of streamlining supply-chain management, forecasting which assembly lines or factories are nearing capacity and which can squeeze out more parts. And it will link engineers to automakers and their suppliers so everyone can collaborate in real time with computer-aided design drawings that team members can tailor to their needs, whether they're at a research park in Tokyo or a truck factory in Tuscaloosa, Ala. Collaboration is another key feature. As many as 1,000 people from dozens of companies--all with secure sign-on names and passwords--could view artist renderings or computer-aided designs in a vast repository dubbed "Visual Vault." As many as 60 people at once could comment on the images during an online conference call. Instead of taking months of coordination and thousands of dollars in travel expenses for all of the supplier representatives to fly to Detroit for a meeting, the Web conference would take moments at a sliver of the cost. Based on the time and cost savings, Covisint directors estimate that they can quarter the average time that it takes to design and build a car. That means a new-generation Chevy Blazer or Ford Taurus would hit showrooms every 12 months to 18 months, instead of the 48 months or longer it now takes.
"The basic fundamentals of manufacturing haven't changed," Covisint
marketing specialist Sam Sharan said. "We're still bending metal. But now
we're opening the whole process up to universal communication. That's what
speeds everything up."
The concept extends well beyond the car business. Last month, several giants in the aviation industry, including British Airways, United Airlines, American Airlines, Continental Airlines and U.S. Airways, said they would form a marketplace for buying jet fuel, plane parts, maintenance, and other goods and services that they estimate will total $32 billion in spending a year. The exchange plans to begin to offer services during the first quarter of 2001. In February, Oracle unveiled a venture with giant Sears Roebuck and France's Carrefour to build an online marketplace serving the retail industry. Sears and Carrefour will initially share a majority stake in GlobalNetXchange, which will link them to their 50,000 suppliers, partners and distributors over the Internet. And in March, six of the largest meat and poultry processors, including Cargill, Farmland Industries, Gold Kist, IBP, Smithfield Foods and Tyson Foods, said they would form a marketplace for meat and poultry buyers and sellers. Although Covisint won't detail the exact technology it is using, analysts say the exchange combines off-the-shelf software from three main suppliers: Oracle, which will provide supply chain management software and its 8i database management software; Commerce One, which will provide procurement software and services; and Nexprise, which will supply software for building links to suppliers. Covisint will also use software from many other companies, including content management company Documentum, and will custom-develop software for various parts of the exchange. Services firms Cap Gemini Ernst & Young, Boston Consulting Group, and PricewaterhouseCoopers are providing consulting services to build the exchange. As tempting as all this sounds, many caution Covisint against taking on too much, too fast. Several independent e-business experts agree that the exchange should focus on only a handful of projects--in particular, getting small to midsized suppliers wired so they can eventually participate in auctions, collaborations and logistical services. "As more light is shed on Covisint, it is clear that Covisint won't become the be-all and end-all of automotive e-business," AMR's Prouty said. "But it has the opportunity to become a central hub for business transactions in the automotive industry." | |
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Yet for all the wonders that e-commerce holds, some fear that the
technology may be the weakest link in Covisint's futurist supply chain.
Experts worry that the exchange's vast scope requires hardware and software
too complex for widespread adoption, especially in a marketplace with
products as diverse as file folders, dash-mounted CD players and trunk
carpeting.
no one has attempted to unite so many fields at once. The auto business, by virtue of its large employment ranks, touches industries ranging from pulp, rubber and carpets to dental services, mainframe computing and electrical utilities.
| Culture: Fear of the unknown may be the worst If Covisint's technological challenges are daunting, its cultural and psychological obstacles are monumental. The auto industry has never collaborated on a project this large, and skeptics wonder how companies that have been cross-town nemeses for nearly a century will be able to sit on boards together without partisan politics. So deep are these sentiments that Covisint's yet-to-be-named chief executive will probably have to be someone outside the industry, partly to eliminate bias. Even Covisint's founding partners had a tough time ignoring their historical animosity. "This is an unnatural act, spending so much time with someone from Ford," GM's Harold Kutner said when asked to recall his first brainstorm sessions with Ford counterpart Brian Kelley. Kutner, who wears a gold chain-link bracelet and has a fondness for polka-dot ties, said the antagonism and awkwardness quickly subsided as he and his counterparts realized the potential cost savings. He said that he, Kelley and Gary Valade, DaimlerChrysler executive vice president for procurement and supply, are now "one voice in three bodies."
But in the anachronism that is the U.S. auto industry, corporate agendas Such concerns are at the heart of a fierce debate in Michigan, where Covisint has promised to stay for at least one year. Much more than an effort to retain a local business, the question of Covisint's location has become an emblematic crusade representing the region's ability to shed its Rust Belt image and take part in the New Economy. Michigan is fighting aggressively for Covisint, which will likely employ 500 people by the end of the year, by offering $1 million in recruitment funds and other perks if it stays put in Southfield or moves to nearby Ann Arbor or another Detroit suburb. That's not an unusual tactic for the state, which hopes to minimize unemployment and poverty during recessions by doling out multimillion-dollar gifts and tax holidays to companies that promise to maintain factories or office complexes in the state. Doug Rothwell, chief executive of the Michigan Economic Development, knows that Michigan's reputation leaves something to be desired. His own office in Lansing, only blocks from the state capitol, sits in a pedestrian mall eerily quiet on a sunny fall weekday at high noon. Nearby, boarded-up storefronts blight what was a bustling shopping zone three decades ago. "There is at least the perception that Michigan is not a high-tech state," Rothwell said. "Covisint is potentially the biggest B2B and represents an evolution of our most fundamental industry. For us to lose that would be a great blow to our status as auto capital of the world." Oakland County executive L. Brooks Patterson, who is wooing Covisint to stay in Southfield or elsewhere in the prosperous county directly north of Detroit, was more blunt. "If we can't land Covisint here, we're saying that we're not so high-tech after all," said Patterson, a local power broker who had to end an interview to meet Texas Gov. George W. Bush during the presidential candidate's swing through Michigan.
Acutely aware of the sensitivity surrounding the subject, Covisint founders The average auto company loses between 2 percent and 5 percent of its work force in a typical year--not counting periods when one automaker is offering extraordinary buyout packages or during an economic recession. The average employee is in his mid- to late-40s. By contrast, technology companies in tech hubs such as Silicon Valley lose roughly 25 percent of their work force each year, often to competitors fond of aggressive recruiting. Ages vary tremendously, but it's not unusual for a small to midsized e-commerce company to have only a handful of workers over 40. Human resource experts say both scenarios are extreme and unhealthy. And because Covisint is a combination of the auto and tech industries, it faces unique human resource challenges. If its average tenure reflects the auto industry, "the problem is that you risk calcifying the organization," said Ilya Talman, president of Chicago technology recruitment company Roy Talman & Associates. "If it's too high, and that's what I suspect it will be, you have problems the other way. Companies that are founded by multiple parents always have problems, and the workers are like the children who get hurt." Along those lines, Talman and others speculated that Covisint, which has been operating with employees on loan from other companies and consultants, may not have the experience needed in the high-stakes world of technology recruitment. Its workers, who have been bankrolled by the founding automakers and technology partners, will be put on Covisint's payroll by the end of the year.
Representatives for the exchange say its new chief executive will determine "There's no question we'll have a major presence in Michigan, as we'll have one in Europe and Asia," Ford's Kelley said, refusing to speculate on the location of a permanent headquarters. "Where the headquarters is located is less important than an understanding that this is a global company operating in a virtual world." That international perspective raises other cultural challenges: How will Covisint participants communicate in a marketplace for 40,000 companies around the world, whose founding partners speak English, French and Japanese and whose suppliers are as likely to be Philippine wire-harness makers as they are German electronics specialists? In addition to buggy translation software and widely varying levels of Internet adoption, Covisint is bumping into less technical cross-cultural problems: BMW, Honda Motor and Volkswagen--Europe's largest automaker--have declined to participate in the project, citing security concerns and philosophical differences with the American companies behind the venture. Toyota Motor, Japan's largest automaker, initially agreed to participate in the exchange but has since hedged on that commitment. Nevertheless, the most formidable cultural obstacles facing Covisint may be rooted in its own back yard, among the suppliers and unions in the Detroit area. In a snub to what could become the farthest-reaching partnership in the auto industry, the United Auto Workers (UAW) doesn't even mention Covisint on its Web site. Union leaders are not talking about Covisint, and several officials said they had not yet heard enough about the exchange to determine whether it would help or hurt their rank and file. One GM assembly line worker in Pontiac, Mich., who did not want to be named, said he is skeptical of the venture because it could take away blue-collar factory jobs. Like many union members, he also displayed an antipathy toward any new idea that senior executives were concocting. "I like the Internet, and I use it for email, and my kids are always playing on the computer," he said. "But this is not just about the Internet. They say 'technology,' and what it really means is 'less humans.'" Scientists say such fears aren't completely unwarranted: Combine Covisint with technology called "collaborative sensing"--software being developed at Sun Microsystems, Xerox and elsewhere that allows "smart" machines to collect and analyze data in real time--and you could do away with factory workers who manually diagnose machines and direct parts flow.
In theory, that could help those
Small suppliers are worried, for instance, that Covisint will charge outrageous participation fees. They insist that the automakers--who required price cuts of up to 5 percent a year on particular auto parts throughout the '90s--will view Covisint as a lucrative revenue stream to help buoy flagging vehicle sales in a gas crunch or a recession. Moreover, suppliers note that they would have to spend money to teach workers how to use the system, install new computers that in many cases require new wiring, and possibly hire people who are already fluent in Covisint software, presumably at a higher pay scale. Covisint has not yet outlined its fee structure, but charges could range from 1 percent to 4 percent of the value of the contract. That may not seem like much, given the enormous costs of paper pushing and telephone calls associated with current bidding processes. According to Ford research, it costs roughly $150 to process the paperwork involved in a single purchase order; the same transaction online costs $5 to $15. But many suppliers dismiss such statistics as marketing hype to generate a buzz on Wall Street for an initial public offering of Covisint, expected in 2001. They dismiss Covisint as they dismiss the hundreds of Silicon Valley start-ups that went public and turned young executives into millionaires, get-rich-quick folks who have never gotten their hands greasy on an assembly line. Besides, they say, even small percentages are big in the auto industry, where the average purchase order for an equipment manufacturer is $75,000. A 1 percent fee would be $750. D.J. Cho, a Covisint marketing executive, knows that the venture is mired in paranoia and plagued by conspiracy theories. His task--recruiting new suppliers to join the fold--is a daunting battle.
"We've had a lot of heartache with this because the public has had so many misconceptions," a weary Cho said while flipping through a PowerPoint presentation on Covisint's merits. "We're not revamping every process they've ever had--we're just taking out inefficiencies." | |
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are often motivated by machismo-bred tradition and warlike paranoia toward
the opposition. Supporters of Covisint and other initiatives to bring the auto industry into the Information Age worry that its old-school attitudes and rivalries will hamper progress in manifold areas, ranging from recruitment efforts to political decisions about the company's location.
the company's permanent headquarters--which could be in Michigan or anywhere else, such as a technology hub like Silicon Valley, Seattle, Boston or New York.
on both ends of Covisint's transactions. But some suppliers have little confidence that the automakers will create an environment of fair trade, regardless of its technical capabilities.
