Hub merger raises alarm

9 March 2000
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09 March 2000

In the wake of Ford and General Motor's decision to merge their fledgling supply chain portals, Elizabeth Bellamy asks: what happened to competitive advantage?

Last month's announcement by Ford, General Motors (GM) and Daimler-Chrysler to jointly form an e-commerce trading hub, or portal, for their procurement has sent shock waves through the purchasing profession. Many managers are wondering what further market consolidation will mean for them.

While details of the portal have yet to be revealed, Nissan and Renault have already announced their intentions to join it. Ford has also said it is actively recruiting other manufacturers and suppliers.

The decision comes just three months after both Ford and GM launched separate trading hubs with IT companies - Ford with Oracle to create AutoXchange and GM with Commerce One for TradeXchange. The exchanges started up earlier this year and Ford predicted it would create initial savings of 20 per cent on its procurement and inventory.

Each system will continue to run independently until the new hub is launched, and both IT companies will be working together on the portal, said Chris Phillips, Commerce One's director of marketing for Europe.

E-commerce providers and big players in a host of industries have been announcing partnerships for forming sector-specific trading hubs almost daily in recent weeks. As SM went to press, steel producer Ispat International released plans to create what it claims to be the first electronic trading community for the metals industry.

Ispat is the world's fifth-largest steel producer, with an annual procurement spend of £2.8 billion. Its deal will see it join the global trading web of e-commerce specialist Commerce One, which also operates portals in the energy and automotive industries.

Commerce One's competitors are following suit, but the Ford/GM move and the inevitable effect of competitive market forces on the fast-growing number of industry portals have raised concerns about the impact on companies' purchasing power.

"If a company pools its supply chain power, what competitive advantage will it have when it comes to purchasing?" asked Moira Wellesley- Crabtree, purchasing director at insurance firm Royal & SunAlliance.

While the Ford venture will cut costs for each company in the short term, she said she was not sure they had thought through the strategic implications of their scheme.

Royal & SunAlliance, which has an indirect spend worldwide of £2 billion, announced plans last week to launch a global £10 million services e-procurement system.

Phillips said that, although the Ford/GM/DaimlerChrysler hub would seek to recruit automotive suppliers with ties to other industries, fears of marketplace domination in other sectors were unfounded as it would not try to become a major trading platform for other industries.

A spokesman for Ford said that the hub merger had been driven to a large extent by suppliers, who were not in favour of dealing with a large number of e-procurement systems. He also admitted that, while the supply chain would remain competitive, the company would have to become more efficient in areas such as vehicle assembly and consumer pricing.

Chris Webster, business development manager for integrated supply chain management at consultancy Cap Gemini, said the supply chain savings from portals would be only short term. "Firms investing in e-commerce will have to pass on the effect of their savings to their customers as markets become more competitive."

Besides training staff in essential new skills, experts warn that companies investing in e-commerce will also have to choose their systems carefully. "They need to look in the cold, hard light of day at what competitive advantage it will give them," said Wellesley-Crabtree.

SMmar2000

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