E-trade stuck in first gear

12 July 2000
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13 July 2000

"Caution" is not a word that often appears in the same sentence as "business-to-business e-commerce". But the demise of the Office of Government Commerce's (OGC) electronic shopping mall and the announcement that the office intends to be more cautious about e-commerce is indicative of a growing concern among business.

In recent weeks, a number of major software firms have blamed poor financial results on a slower-than-expected uptake of their e-commerce systems. Firms of all sizes are asking who will benefit from large e-commerce projects and what the quantifiable successes are that can justify the expense of joining in.

The sector in the greatest turmoil over e-commerce is the automotive industry, where small and medium-sized enterprises (SMEs) are wondering how it will shape their relationships with first-tier suppliers and original equipment manufacturers (OEMs).

One option for SMEs is simply to leave the industry, a course of action that automotive-component manufacturer Britax International announced it would be taking last month.

The West Midlands firm recently sold its car-mirror business and, in a parting shot, Richard Marton, its chief executive, labelled automotive supply as "a beastly environment in which unreasonable demands and pressures are put upon all the people that operate in it".

Ford, General Motors and DaimlerChrysler are telling suppliers that if they wish to trade with them, then hooking up to their online trading exchange, Covisint, will be imperative. Users will share information and collaborate via the Internet.

Covisint is set to be the world's largest electronic marketplace when it opens for business at the end of the year - if it gets approval from the Federal Trade Commission in the US.

But many suppliers, particularly SMEs connected to first or second-tier suppliers, fear that Covisint will add to the downward pressure on profit margins. Will it help first-tier suppliers, such as fuel and brake-system firm TI Group, to move closer to OEMs and generate new business?

"I can't see where it fits in to how we deal with our customers," Gerald Brooks, the company's logistics director said at an automotive supply chain conference in London recently.

He told SM: "Our customer relationships are based on the fact that we are effectively not in a marketplace."

But Brooks added that he could see that e-commerce could benefit the firm in its dealings with its suppliers. An SME supplier could best use an electronic marketplace for getting noticed by first-tier suppliers, he said.

Setting the rules

The point is that the rules of the e-commerce marketplace have yet to be worked out, according to Michael Szczygiel, IT projects director at the European Automotive Initiative Group, a lean automotive supply chain organisation.

He predicts that marketplaces based on regions will spring up, and that some will be set up specifically for big industrial estates that have diverse companies but similar supply needs.

Many exchanges will basically be a marketing tool with which SMEs will target first and second-tier suppliers, added Szczygiel.

Some small exchanges are already up and running. Two-year-old Local Link, on which manufacturers can display their goods for a one-off charge of £99, gets up to 10,000 hits a month, according to Robert Meakes, the company's managing director.

In the autumn, Local Link, which features the goods of around 400 firms, is set to launch its web-based ordering service.

"It's for the guy in a large corporation who hasn't got the time to search through lots of directories," said Meakes. "The beneficiaries are those without much experience of marketing themselves."

Exchanges will allow second and third-tier suppliers to make their presence known and provide "an opportunity to have a small slice of the pie, when they didn't have a slice before", said Chris Badcock, a principal at consultancy Cap Gemini Ernst & Young.

The message is to start small and see where the benefits are, he added. "There is only so much that you can take out of supplier costs. Exchanges will work best when schedules are lined up over two or three tiers and inventory visibility runs across all of the systems."

Automotive SMEs could work with smaller exchanges before Covisint comes online and then decide where the best value lies, suggests Badcock. "You can't just watch e-commerce, you must participate in it and learn."

SMjul2000

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