GM & Ford look to the Web for purchasing
Photo identifications were omitted from our November feature story on Cragin Industrial Supply, "Ties that bind" (p.78). Clockwise from top left are: Jack Szafraniec, vice president of operations; Christine Szafraniec, manager; and Bob Szafraniec, corporate vice president.; MI's Mark Sheehan sees a good future for online purchasing.
By Industrial Distribution Staff -- Industrial Distribution, 12/1/1999
Detroit--If you supply the automotive industry, it's time to either move online or move aside.General Motors Corp. and Ford Motor Corp. announced they will put their purchasing operations on the Web early in 2000. GM announced that by the end of 2001, all of its suppliers will be required to conduct transactions through an online trading network.
The nation's two top automakers hope to save billions of dollars in procurement costs and respond more quickly to consumer preferences. Both companies expect to open portions of their electronic trading networks during the first quarter.
Many distributors and other suppliers will have to quickly upgrade their information technology systems to interface with the automakers' purchasing systems. GM sent letters to its suppliers in November saying, "this is the only way we are going to do business," GM vice president Harold Kutner announced.
GM, for one, expects its online trading network will cut the time it takes to complete a purchase from between one and 16 weeks to between hours or several days. GM estimates it costs about $100 in time, personnel and paper to handle an average purchase order, and hopes to cut that to $10. Its online network, called GM TradeXchange, provides an order management system, the ability to update catalogs, auctions and more.
While a few distributors and OEMs that supply the auto industry already conduct some transactions online, the moves by GM and Ford will push even those firms to update their order management systems.
Motion Industries, Inc., the $2 billion distributor that counts GM among its top customers, expects to conduct business online with the automaker by the second quarter, said Mark Sheehan, vice president and general manager of MI's North Division. MI has pending agreements with e-commerce software vendors that GM partners with, and Sheehan believes that by the end of 1999, "90 percent of the pieces will be in place to make the transition to e-commerce."
"Our corporate goal is to participate in multiple e-commerce marketplaces," said Sheehan. "We're excited about the GM opportunity." MI, which began developing a new operating system six years ago, will be "Web-enabled for the majority of these online shopping malls," he said.
Many questions remain about how the purchasing networks will operate and what their impact will be.
Doug Ruggles, president of Martin Plant Services, a division of Martin Supply in Sheffield, Ala., said one of his key customers, Delphi Automotive Systems -- the former GM unit that is named as one of GM's major partners for TradeXchange -- had little knowledge of the initiative at first. Martin Plant Services has an integrated supply contract with one Delphi plant and no transactions are currently done via the Internet. Ruggles said his firm is developing e-commerce capabilities.
Ruggles said his main concern is whether value-added services such as managing point-of-use cabinets for commodities will be eliminated if automakers buy on price. Still, he recognizes there likely will be no turning back from doing electronic purchasing.
"We know we have to provide that [Internet] solution, just as five years ago we knew we needed more national accounts," he said. "It's good in a way that the bar is being raised for people in our industry, but it's not so easy to get into it. You must have EDI or e-commerce."
Gary Scheff, general sales manager for automotive original equipment engineered products at Goodyear Tire & Rubber Co., said GM and Ford's moves were expected. Goodyear, for one, already interacts with OEM customers on the Internet for purchase orders, payments and to communicate quality.
"This, in my mind, is the next step for the automakers to get the supply base closer to the consumers," said Scheff.
Ford spokesman Ron Iori said that in many ways relations with suppliers will not change. "We're not going to go out and buy a seat online, but once we spec it out and order it, the rest will be done online," he said.
E-commerce provider Commerce One Inc. manages GM TradeXchange (www.gmsupplypower.com), which will connect suppliers and dealers alike and enable both sides to reduce costs and increase efficiency. The site so far also includes sponsored content from W.W. Grainger, Inc.
Ford selected Oracle for its trading network, called AutoXchange, which will facilitate $80 billion in annual purchasing transactions.
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