While online auctions continue to grow in number, carmakers and suppliers are using different exchanges and various strategies to run them.
Covisint, the auto industry's dominant exchange, expects to have completed 1,200 auctions by the end of 2001. Around 400 will have been run in Europe.
Volkswagen plans to run about 835 auctions worldwide this year on its Electronic Supplier Link (ESL) exchange. It will announce details at a press conference this week.
Suppliers bidding online for component contracts respond to prices posted on the Web by other bidders. But as more auctions are held, there is still suspicion among some suppliers that they are used to mainly to beat down parts prices to uneconomic levels.
Still, Covisint Europe boss Lars Olrik says the e-Business revolution is on course.
'We have been very successful at building the auction business in Europe, not just with OEMs but also with suppliers,' he says.
As of the end of September, Covisint had hosted more than 1,000 online bidding events worldwide, representing over $45 billion (E51 billion) in transactions. About 200 online catalogs are in use and over 61,000 transactions involving more than 2.5 million individual items have been completed.
Auctions are generally administered by Covisint personnel. In Europe, they are usually processed through Covisint Europe's data center, next to its head office in Amsterdam. But they can be administered at customers' own premises.
Olrik says it could be 12 to 18 months before customers are confident enough to run auctions independently.
'Careful policing of the buyer auction process is crucial,' he said.
Rules defined by the buyer determine if bidders must submit multiple proposals or a single bid. The buyer also decides if bidders may receive information on other bids submitted.
Covisint also hosts seller auctions that allow users to sell excess or obsolete assets, such as capacity, equipment or surplus inventory.
Olrik says an increasing emphasis on time and cost savings associated with the auction process is evolving. He says less importance is being attached to actual parts prices achieved through bidding.
Covisint was founded in early 2000 by General Motors, Ford and DaimlerChrysler. Renault, Nissan and PSA/Peugeot-Citroen later joined.
Covisint Europe's biggest auction was the four-day event run for DaimlerChrysler in May. The auction covered all body-in-white parts for the successor to the Mercedes-Benz M-class and a minivan. Both will be manufactured in Tuscaloosa, Alabama, USA, beginning in 2004.
Covisint Europe staff ran the auction at DaimlerChrysler's Stuttgart offices. Five pre-qualified suppliers traded 1,200 parts in 80 combinations. The orders were worth E3.5 billion.
The names of participating bidders have not been revealed.
PSA, Covisint's latest OEM member, recently used Covisint Europe to host an auction for glass components. This resulted in a best price just 6 percent above a target price set by PSA in advance of the first negotiation round with suppliers. A traditional round of negotiations ahead of the auction had received a best price 13 percent above the target.
'We make 150,000 small purchases a year,' said Herve Guyot, head of purchasing at PSA. 'With these new tools, we could save an enormous amount of time.'
Intier Automotive, a unit of Magna International, conducted its first Covisint-aided online auction for seat systems in August. The auction involved eight lower-tier suppliers.
'The results were encouraging and met our expectations,' said Keith Angelocci, Intier's director of purchasing for seat systems. 'As a result, we will make online auctions a permanent part of our purchasing process to include raw materials, components and maintenance supplies.'
Volkswagen's ESL exchange was developed in partnership with i2 Technologies, Ariba and IBM but auction software is provided by eBreviate, an EDS (Electronic Data Systems) company. It is installed behind VW's corporate firewall, within its information technology infrastructure, rather than being hosted by the US software vendor. This avoids transaction fees that hosted auction providers charge.
ESL encompasses all of VW's operating units and brands, including VW, Audi, Seat, and Skoda. Auctions are conducted at VW sites in Brazil, the Czech Republic, Germany, Mexico and Spain.
VW had completed 270 auctions in an eight-month period to July 2001, involving more than $5.2 billion of direct and indirect materials and services. For the full year, VW plans to run about 835 auctions worldwide, about 75 percent involving direct materials. VW will not quantify resulting cost savings from lower parts prices, but claims an 80 percent process time saving for indirect goods compared with traditional procurement processes, and 60-70 percent savings for production parts.
Valeo is one European supplier that has chosen to follow a more independent route, signing a two-year agreement with FreeMarkets. Under the deal, the US software vendor provides Valeo with access to its business-to-business e-marketplace. Valeo is using FreeMarkets for the reverse auctioning of more than $300 million in parts and services in 2001.
'I firmly believe that reverse auctioning will help us streamline our supply base,' said Christine Benard, vice president of purchasing for the Valeo group.
The agreement with FreeMarkets is part of Valeo's [email protected] (e-procurement at Supplier Integration) project, which also involves other software providers, notably Commerce One.
SupplyOn also hosts auction events in Europe for around 30 material groups, with a heavy emphasis on engineered parts. The German exchange, which focuses on Tier 1 relationships with lower-tier suppliers, has not reported how many auctions it has conducted. But it says it has handled around 550 online requests for quotes and auctions by mid-November and expects to exceed 1,000 by the end of 2001.
SupplyOn CEO Michael Klemm said policing of auctions is vital if confidence among buyers and sellers is to be improved and retained. As buyer auctions have accelerated in recent months, criticism has increased.
Accusations of phantom bids originating from hosts and others have been made, as well as suggestions that some completed auctions have been declared void because results were not to the satisfaction of buyers.
Greater transparency in the bidding process can ease some of these fears, say suppliers. But whether or not individual bidders can 'see' competing bids remains at the discretion of the host.
Some common rules could be the solution, say suppliers. These rules could be agreed to by national bodies such as the VDA in Germany and CLEPA, the European supplier association, as well as the key auction hosts.