LONDON - Carmakers are asking their suppliers to prepare for a new way of doing business online.
They want vendors to become part of 'extended enterprises' that begin as point-and-click purchasing websites, and then evolve into vast data interchanges.
Proponents say the new networks will bind together the scattered portions of the automaking process, changing the way cars are designed, developed, sold and delivered.
Ford and General Motors have announced electronic commerce websites that begin operating early this year. Other carmakers are expected to follow soon.
By the end of 2000, the new approach will be widespread, said Alice Miles, president of AutoXchange, a new joint venture between Ford Motor Co. and Oracle Corp., the world's largest database company.
The networks will allow business partners to share data, as opposed to merely exchanging e-mails or files. Car buyers, dealers, suppliers and manufacturers will shift money and information around the globe instantaneously.
AutoXchange and GM's MarketSite will handle transactions over the Internet-like Automotive Network Exchange (ANX) - a secure web infrastructure that is already in place in North America.
The European equivalent, European Network Exchange, is going through trial programs in 10 European countries.
Ford has said its new system could cut procurement costs by up to 20 percent by reducing paperwork and speeding negotiations.
Suppliers will have a single connection with Ford instead of a series of links for various departments. Supplier executives will be able to keep track of orders and stay abreast of production rates and stock levels via a continuously updated database.
Wolfgang Haas, electronic data interchange coordinator at BMW Motoren GmbH in Steyr, Austria, described the new free-flow of information as a 'glass pipeline,' giving partners a much better understanding of what carmakers do.
Lou Unkeless, senior director for applications marketing at Oracle, described AutoXchange as a hub/spoke network. Suppliers can connect into the hub and perform online trading with other participants.
'Whether you are an OEM, a Tier 1 supplier or a dealer, you can connect into it,' he said. 'You can deal direct with all the other members of the AutoXchange. There is a single standard for everyone.'
The approach relies on the new technological infrastructure. But the key to success is changing business models and transforming relationships, said Konrad Ellegast, chief executive of Phoenix AG, a leading supplier of rubber hoses, belts and antivibration technology.
Jean-Jacques Urban Gallino, head of PSA/Peugeot-Citroen's Ingenum logistics project, said sharing information is the big change.
'It is a revolution in attitude and this is not the easiest way,' he said. 'Changes in the relationships we have with our suppliers will be tremendous.'
The outlook is grim for those who can't meet customer requirements. 'This will be a necessity for any company that wants to do business with Ford,' said John Buchanan, supervisor of global supplier electronic communications at Ford in the UK.
Build to order
Logistics experts say the industry-wide drive to cut order-to-delivery times to a few weeks - or even days - will hinge on the new networks. When buyers choose the options on a new car - either over the Internet or at a dealer - a parts order will be generated that cascades down the supply tiers in microseconds.
It is feasible to reduce build-to-order times to three weeks, said Hermann Krog, group corporate director for logistics at Volkswagen AG. But he said it won't happen until orders are processed faster.
'Typically parts are in our plant for only two days,' Krog said. 'We lose about five days in administration, but the big issue is order management and the dealers, who take the order and then sit on it for a week.'
AutoXchange's Miles predicted that Ford's customers will eventually want to see custom-ordered vehicles delivered within 24 hours. 'But for now, our sights are focused on getting that time down as short as possible,' she said.
Suppliers are also committed to lowering delivery times, said Dick Monte, chief executive of exhaust systems supplier Bosal Manufacturing and board member of CLEPA, the European suppliers' association.
'In the 1990s we spent our time demolishing internal walls within our organizations,' he said. 'The 2000s will see us demolishing walls between us and our partners.'
Miles said Ford has been working with about 1,200 direct suppliers on the AutoXchange project.
'Certainly through 2000 we intend to be very active on education and training,' she said. 'We want people to look at it as their exchange.'
Miles predicted that most of the 1,200 suppliers will be members of AutoXchange by the end of 2000. She declined to speculate on how long it will take for the rest of Ford's 30,000-member global supplier base to join.
AutoXchange will start mainly as a way to handle purchasing for production parts and non-production goods and services. But Miles said a series of ambitious upgrades are planned during the year, including order tracking, financial services and the ability to view Ford's up-to-date CAD (computer-aided design) drawings.
'There are other things we are looking at that I know suppliers would really like to have,' she said. 'Status of payments, for example, is something suppliers have wanted for many years, and now we have an opportunity to offer it to them.'
The new trading sites do create some worries among suppliers, however. Gordon Graylish, marketing director for Intel Corp.'s European division, said suppliers 'should be concerned about online auctions for components and materials.'
'Decisions will be made by computers, not people,' said Phoenix's Ellegast. 'That means we have to develop new ways of winning the business.'
Suppliers 'do get concerned by the word `auction,'' said Miles, 'but we will not let a computer program award a contract purely on price.'
She said Ford has already started running online 'quoting events' for certain components. 'These are not auctions,' she said. 'An auction is open to everyone. We do not want to do that.'
Miles predicted other trading sites would emerge from other carmakers. She said: 'Those who offer the easiest interface, the quickest reaction and the best service will win.'