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Covisint’s strategic goal is to accelerate the transformation of the automotive industry from mass production to a customized production model, by providing an infrastructure that will let customers custom-configure a car that can be deliver in a few days. Covisint will allow the automotive industry to transact business, on a global basis, though implementation and use of Internet-based technology. The exchange will be a component of the infrastructure that will communicate and integrate systems from the dealers back to the multi-tiered supply chain. Initially, products and services offered by the exchange will enable the industry to improve the effectiveness of the procurement process (horizontal market functionality) and will improve the production requirement visibility for the automotive supply chain (vertical market functionality). During this phase suppliers will be able to post catalogs for material not used directly in manufactured products, such as tools, office supplies, and machinery. Also, members of the exchange will be able to sponsor auctions and reverse auctions. Additionally, Covisint plans to help automate the postings of requests for quotations for direct materials (i.e. components used directly in manufacturing). However, the automated systematic sourcing required by the discrete manufacturing process will not be supported during the initial phase of operation. Covisint is expected to offer, in the future, transparent, real-time, two-way supply chain collaboration between automakers and all their suppliers in order to achieve industry-wide supply chain optimization. The exchange is financially backed by five of the leading automakers and the technology partners have also taken an equity stake. In the future, the exchange is expected to include nearly 40,000 suppliers. Covisint’s main objective is to save billions of dollars for automakers and suppliers by minimizing inefficiencies in their supply chain through the implementation of real-time planning and design collaboration tools. Savings will be realized by eliminating inventory buildups along the supply chain and by compressing the time to bring a car into production from 48 months to 12. Sometime in the next two years Covisint will be spun off as a separate company and its executives are expecting to receive revenues by hosting other industries that may be interested in using the automotive platform to support their multi-tier supply chain transactions. Currently, Covisint has not attracted all the major automakers, and only 12 of the 40 most important parts suppliers have signed on with the exchange. Additionally, some tier 1 suppliers are building private exchanges and are considering building a suppliers-operated marketplace to provide the technology required for real-time supply chain visibility and collaboration for their supply chains. Covisint’s long-term goal is to attract as many as 8,000 of the largest suppliers and let them bring their own lower-tier suppliers. It is too early to know what exactly Covisint will deliver, and how many suppliers will use its platform. But we can be certain that Covisint will reach critical mass. The concentrated buying power of the automakers will provide the required liquidity. GM and Ford alone spend $250 billion on direct purchasing of raw materials and pre-assemble components. DaimlerChrysler purchases about $80 billion a year directly from its suppliers worldwide. Expected to handle $750 billion in annual purchases by automakers and suppliers Covisint has not yet recruited all the major car companies. BMW and Volkswagen AG are planning their own exchanges. The extent of Toyota Motor Corp procurement’s participation is unclear. Toyota has its own Intranet system that links its operations with 1,250 parts suppliers.
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This report was completed in October 2000 for the class B2B Electronic Commerce given by Prof. Carmel in the program of Management Of Global Information Technology at the Kogod School of Business at American University in Washington D.C.
