The B2b Automotive Industry

Ford, GM, and Daimler-Chrysler launched Covisint in 1999, which is an online marketplace for the global automotive industry. Covisint is to act as a “central exchange” for the participating manufacturers and all other members of the supply chain. Covisint encompasses three areas of the vertical buy-side e-markets including e-procurement, supply chain management and e-development.

Covisint grew quickly during 2000 and French manufacturer Renault and Japanese manufacturer Nissan had joined as investors. Analysts estimated that together, the four manufacturers had invested $240 million by April 2000. In early 2001, French manufacturer PSA Peugeot also joined as an investor. Its first step was to target online auction technology as auction-driven e-marketplaces were by far the most popular business-to-business purchasing technology at the time. Online auctions gave corporations a platform to gather numerous suppliers and make them compete against each other on price, quality, or delivery time. The technology evolutionalized supplier sourcing and price negotiation, and lead to initial success for many e-marketplaces.

In 2001, Ford saved $70 million in procurement costs by using Covisint. However, the commitment of Covisint’s three manufacturers has been failing as they have continued to develop other e-marketplaces to source and procure goods alongside Covisint. Covisint then transformed itself into an automotive industry software solutions provider and standards body.

The rapid advent e-commerce has resulted in dramatic changes in the business environment. Due to the unique structure of the technology, there are more opportunities for businesses to benefit from those advances. Using e-commerce related technologies, the businesses can easily reach their potential suppliers and consumers worldwide. As the one of technology driven industry, the automotive Industry, has benefited significantly from the advancement of the e-commerce. “General Motors is now the largest automotive company in the world, with a workforce of over 388, 000 and a worldwide supplier base of over 30, 000.”(Wiki) The industry has adopted e-commerce technology mainly by implementing Business to Business, and Supply chain integration models.

By using Business to Business model, the car manufacturers have achieved efficiency in their daily operations. B2B means that business deals and transactions conducted online between businesses. For instance, in auto industry, automakers need to buy the materials from suppliers and sell cars to the dealers. This is a typical B to B transaction in the auto industry. After the B to B related technology has been widely implemented in the industry, car companies are able to save their costs by eliminating paper-based systems, and reducing the usage of mailroom staff. Also the B to B has helped the companies to reduce the potential errors made by the employees in order to improve the company’s data accuracy. For example, some of business numbers may have double recorded by an accounting stuff. Without Electronic Data Interchange system in place, the company would face a potential loss. The EDI can define and transfer standard data without human intervention. Finally, implementing B to B model can improve the relationship between automobile manufacturers and suppliers in order to reduce procurement costs and improve efficiency. For example, Ford cooperated with its competitors creating an auto-exchange website to help dealers to meet its suppliers online. It is trued out to be a very success story.

In the E-business transactions there are always involved in manage of information flow, capital flows. The Information flow is from many of internal and external business functions such as information of marketing, technical support, payment information, business reputation and so on. By adopting supply chain integration model, automotive industry is be able to manage all the information efficiently and create a smooth flow to distributors, suppliers, internal divisions and customers. The most of the auto makers are using ERP and CRM systems to manage their supply chain management process. “ERP (enterprise resource planning) is an industry term for the broad set of activities that helps a business manages the important parts of its business” (Wiki). The results come from ERP can help the managers to evaluate the company’s performance and see if it meets the corporate objectives. CRM (customer relation management) is a model built to help organizations to reach customers easily and receive their feedbacks. Because this model integrates customer’s information to the overall enterprise, the supply chain management would be improved efficiently.

In the automotive industry the e-commerce platform is commonly used for automakers to buy material online from suppliers. For instance, Ford uses the system to divide the supplier for different levels based the components of a car. When the firm needs to buy systems or seats, the firm would inform first layer suppliers through its e-procurement platform. In that way, Ford can improve relationship with suppliers, save transaction cost and reduce its inventory level.

Automotive industry has change from purely physic to click and break. E-commerce has played important role in this revolution. No matter how long and how big the organizations are, it should adopt new technologies fast, otherwise the firm would fail to survive in this competitive industry. By implementing e-business strategies, the company can operate more efficiently, timely and profitably.

industry analysis: current & possible future state

Present

Covisint now offers portal solutions that allow manufacturers and suppliers to adopt Covisint’s technical standards, which in turn will allow trade with other suppliers and manufacturers using those standards. The goal of the automotive industry is to create a standardized industry system that any manufacturer and its partners can access. Similar to a software company, Covisint is now developing a range of application products to offer. Its future revenues now depend on these software sales which is a big change from the e-marketplace model, which would have generated revenues through supplier and buyer subscriptions or transaction fees.

Future product areas include design collaboration, procurement, supply chain management, quality control and portal solutions. Despite its initial challenges, Covisint has achieved some significant success. Over 2001, Covisint hosted 1,400 auctions, which led to over $51 billion worth of transactions. The organization has also web-enabled over 200 catalogues with over 2.5 million items.

The automotive industry has been struggling for the last few years but by the end of 2010 production has begun to rise. Budgets for investment in B2B infrastructures has also begun to rise to remain competitive. Now, companies are investigating into new technologies such as cloud computing based B2B services to reduce the day to day management of B2B systems.

Investing in B2B can inspire a variety of different business interactions. Also, one-time gains and on-going savings from adopting standardized B2B technologies will outweigh any social challenges arising from factors such as individual company history, country of residence, local laws, geography and resources.

Porter’s five forces are significantly affected with the advent of technology enabling business to e-business. The following five forces can be examined in respect to the automotive industry.

Threat of New Entrants: Historically, it was thought that the American automobile industry and the Big Three were safe as the average person could not come along and start manufacturing automobiles. However, the emergence of foreign competitors with the capital, required technologies and management skills began to enter and take some of the market share of North American companies. In addition, e-business models will enable easier entry into the industry, as now, companies may only look to perform very few activities in-house, and outsource the rest to other firms in the value chain. This decreases the management complexity among new entrants, and thus the threat of new entrants may go up.

Power of Suppliers: The automobile supply business is quite fragmented (there are many firms). Many suppliers rely on one or two automakers to buy a majority of their products. If an automaker decided to switch suppliers, it could be devastating to the previous supplier’s business. As a result, suppliers are extremely susceptible to the requirements of the automobile manufacturer and hold very little power. However, as e-business models arise, the bargaining power of suppliers may increase as the information accessibility is increased and the information gap is narrowed. This leads to lower bargaining power for the firm, and may transcend into lower profits.

Power of Buyers: In the past, the bargaining power of automakers was high. However, North American consumers craved more product variety and better features which they found in foreign car options. Consumers while being price sensitive, still don’t have much buying power as they do not purchase volumes of cars. On the other hand, with e-business on the rise, the bargaining power of customers will increase as access to information increases. Although, with the increase in customer reach, the bargaining power of customers is also negatively impacted by e-business models.

Availability of Substitutes: The higher the operating costs of a vehicle, the more likely other modes of transportation will be considered such as taking a bus, train or airplane to their destination. The ever increasing price of gasoline has a large effect on consumers’ decisions to buy vehicles. Larger gas guzzling vehicles such as trucks and sport utility vehicles have higher profit margins, but fare worse off than smaller sedans and light trucks when gas prices soar. Time, money, personal preference and convenience are also factors considered by consumers when deciding which mode of transportation suits their needs. With more e-business activities, there will be greater strides in innovation in the automotive industry giving us more fuel efficient vehicles and other vehicle options such as hybrid models than can operate without fuel.

Competitive Rivalry: The automotive industry is considered to be an oligopoly, which helps to reduce price-based competition. The automakers understand that price-based competition does not necessarily lead to increases in the size of the marketplace. In the past, the major players in the industry have tried to avoid price wars, but more recently the heightened level of competition has fueled rebates, preferred financing and long-term warranties to attract potential customers. However, these incentives also lowered profit margins. Technology and the e-business has increased the level of information available and enabled incentives to be better tailored to current market demands.

Future

Businesses worldwide now use B2B e-commerce to buy over a trillion dollars in goods and services yearly. The trend for the future of the automotive industry is to reduce costs by moving B2B infrastructures to a cloud based environment just as other manufacturing companies are also doing. Social Networking tools are more readily available to help improve collaboration amongst global trading partners. New mobile devices allow information to be exchanged any time, any place and anywhere. As technology progresses and new, secure communication protocols are being introduced to the automotive sector, more company sensitive information will be able to flow without hesitation.

As more companies are focusing on their bottom line, some have moved operations to emerging countries such as India and China. Remote employees may have to be supported onsite for many months until the production systems stabilize and information begins to flow seamlessly from the various IT systems back to home operations. Emerging technology will try to simply connect a new plant into a ‘Manufacturing Cloud’ and this cloud could contain everything that was required to get the new plant online and up and running as quickly as possible, with minimum resources.

The future success of the automotive industry lies in its ability to integrate the B2B marketplace with Enterprise Resource Planning (ERP) systems. The integrated B2B and ERP platform will allow the automotive companies to improve how they manage inventory levels, trading partner relationships and reduce costs across their business.

toyota motor corporation: swot analysis

A SWOT analysis is used to establish the efficiency of e-commerce within Toyota Motor Corporation, as well as any potential improvements that can be implemented.

strengths

The major strength for Toyota is that it is an established international company, a manufacturing leader in the automotive industry. This allows its efforts in electronic commerce to be powerfully employed. The company’s online showroom allows potential consumers to view the vehicles in customized forms by changing colour, and also allows them to read up on added accessories and interior details. These showrooms ultimately promote purchase decisions. Another strength for Toyota is that it has several efficient online dealers essentially running an e-commerce storefront, selling vehicles straight from the internet. Toyota also has a strong system of reusing and salvaging parts through the use of e-commerce. Used parts are sold on the web through distributors (see appendix A).

weaknesses

Though the company has implemented online showrooms, they simply allow consumers to select and order a vehicle they would like to purchase but the final purchase is made in person at a dealership. There is room for more advancement in the e-commerce world by allowing consumers to search, purchase, and have a vehicle delivered to the home, ultimately eliminating the absolute need for a brick-and-mortar dealership where the purchasing process is traditionally completed.

opportunities

Continual international growth through e-commerce is attainable. There is demand for environmentally friendly vehicles, an area of strength for Toyota. By recognizing the extent of this demand, Toyota can use e-commerce to exploit it through online advertising and promotions (Bradbury, 2010). The internet is one of the most effective and efficient methods of reaching a large audience, therefore marketing opportunities are always huge.

threats

The external environment provides threats to any business, and Toyota is not an exception. Higher gas prices affects the demand for vehicles, making e-commerce efforts less effective (Bradbury, 2010). Also, competition in the automotive industry in respect to e-commerce is major, therefore Toyota must be sure to continuously improve and keep up-to-date with its rivals in terms of e-commerce implementation.

firm & industry e-commerce effectiveness

Toyota Motor Corporation has been highly recognized in the automotive industry for their “lean” manufacturing with the Toyota Production System (TPS). In which “companies throughout the world have been looking to Toyota as a model for manufacturing” (Likert, 2006). This “lean initiative” not only dominates the automotive industry, “recently has gone beyond the shop floor to white-collar offices and is even spreading to service industries” (Liker, 2006). The recognition comes from the fact that with the use of TPS, Toyota continues to produce high quality vehicles faster and for less cost than most of its competition, which results in greater overall profits. “They also manage more new vehicle launches annually than most of their competitors, thus creating a steady flow of high quality new products to meet consumer demand” (Likert, 2006). Alan Miialty, who took over as CEO of Ford in 2006 was quoted, “They’re arguably the finest manufacturing company in the world, I’ve been a student of the Toyota Production System for my 37 years at Boeing. I’ve been to Japan 47 times” (Chappell, 2007). Although there have been many companies that have tried to duplicate the Toyota way, but the underlying principles requires “a true systems approach that effectively integrates people, processes, and technology” (Likert, 2006). Toyota is able to accomplish this by creating a learning culture across the organization to include “continual, comprehensive, and coordinated effort for change and learning across the organization” (Likert, 2006).

The use of E-commerce initiatives has contributed to the success of the Toyota Production System. This can be seen specifically in Toyota’s relationship with its suppliers, as Planning Perspectives CEO John Henke Jr. surveyed 231 Tier 1 suppliers from February through April. Suppliers graded six automakers using yardsticks such as willingness to help suppliers cut costs, pay suppliers for cancelled programs and reward top suppliers with new business (Sherefkin, 2009). Although, Toyota has always finished with top marks historically, it was recently dethroned in this survey in North America by Honda as having the best supplier relations in the annual ranking. “Honda, Toyota and Nissan remain above the industry average in supplier relations, while the Detroit 3 are below average” (Sherefkin, 2009). Toyota engages e-commerce tools such as Covisint to emphasize its relationship management with its suppliers. As studies have shown that “large hub firms are able to exercise power over their tier 1 (direct) suppliers (spoke firms), with an estimated 80% to 90% of tier 1 suppliers receiving or using EDI in Australia” (Tanewski et al., 2003). Although Covisint have focused on using “XML Technology rather EDI” (Tierney, 2004), the examples from Australia show the willingness of business to business e-commerce with both OEM manufacturers and suppliers. The use of Covisint allows Toyota to share information electronically with its tier 1 suppliers with lower transaction cost, therefore maintaining its lean production system. The transaction cost perspective is that the firm focus on more than just production costs, but also the associated transaction costs to do business, which “include all search and information costs, as well as the costs of monitoring and enforcing contractual performance” (Robins, 1987: 69). Prior to the development of Covisint, suppliers were using “different software packages and file exchange formats used by the different vehicle makers for engineering design information” (Tanewski et al, 2003). This problem was addressed within the framework of Covisint ensuring the benefits of this e-commerce exchange to be benefitted by all its members.

Suppliers like Denso, makers of components for fuel saving hybrids have also flourished, due to their cooperation with of Toyota, and will likely continue as they strive to become more of a global player. President Koichi Fukaya of Denso recently stated, “Honestly speaking, it’s Toyota first, Toyota is our biggest shareholder and originally like our father”. Toyota holds a 21 percent stake in Denso and accounts for half of the auto supplier’s sales (Greimel, 2007). Keeping close contact with trading-partners like suppliers, and information systems portals like Covisint, as well as industry groups has been extremely helpful for manufacturers to lower its costs. “Only in this way can manufacturer avoid very costly or rush projects necessary to stay in step with the industry and its customers (Piszczalski, 2003). Covisint has capitalized with the use of the internet to ensure these multi-million dollar auctions run more efficiently. By utilizing the internet compared to traditional fax machine based communication, “an auction can be wrapped up in as little as 10 minutes online” (Loftus, 2002). Typically, Covisint’s average auction lasts about 45 minutes, and has the ability to allow for suppliers to “instantly see what others are bidding so they know how much to adjust their own price” (Loftus, 2002). The ability to see the pricing of other suppliers have both positive and negative impact, as the speed of these auctions, suppliers are warned “to know what their lowest possible bid will be before an auction… as there is hardly enough time to crunch the numbers if the prep work hasn’t been done” (Loftus, 2002).