The U.S. automotive industry buys parts and services from more than 30,000 suppliers annually to keep Americans on the road in the new cars that we love. The paperwork involved in procurement can add as much as $100 to each transaction. The annual flow of parts and services for the automotive industry can exceed $300 billion per year.
It is clear that any improvement in cost-efficiency results in big dollar savings at the bottom line. The auto- makers have been trying to use the Internet to improve their supply chain for years, but proprietary technologies and a lack of standards have blocked effective collaboration. Extensible markup language (XML) has emerged as the vehicle to hurdle these barriers and to encourage broad collaboration.
At the end of February, the three major U.S. automakers (Ford, GM and DaimlerChrysler) announced an alliance to streamline their vast network of suppliers. This alliance creates a common meta data repository based on XML for improved use of information in the supply chain network. XML makes e-commerce easier, business-to-business information exchange smoother and everyday browsing better. As the next rung on the Internet evolutionary ladder, XML is one of the hottest new technologies today.
The centralized, common automotive-parts procurement exchange represents the largest e-business on the Internet. Capitalization estimates average in the neighborhood of $40 billion. Annual revenues from transaction fees, advertising and other services will run about $3 billion per year. The supply chain that flows through this venture annually will control nearly $300 billion with potential for growth up to $750 billion.
An important aspect of this new venture is the fact just a few months ago, Ford and GM were competitors in both real and virtual space. Both companies had their own, separate e-businesses with a competitive bloodbath around the corner. Suppliers for these mammoth manufacturers had to choose sides or keep two books of meta data to describe their auto parts and services. Happily, the choice was cooperation, in a win/win/win situation for the automotive industry, the suppliers and, ultimately, for the customer.
Not only is it unprecedented for GM, Ford and DaimlerChrysler to collaborate on this type of joint venture, but it is the world's largest, fastest exchange for transacting business e-commerce or otherwise ever created. Oracle and Commerce One are both expected to provide meta data and XML services to the new venture. Cisco will provide networking products in a quick-start kit for the more than 30,000 suppliers, enabling immediate, secure access to begin transacting business.
The use of a common standard for meta data to eliminate procurement paperwork to the tune of tens of billions of dollars makes the cooperation a no-brainer. Let's emphasize that point. At no time are we talking about millions of dollars. All quantities are in billions of dollars, numbers that command respect in any industry.
The supply chain enterprise will be a separate company and will be open to other auto manufacturers. It may eventually expand to include other industries. The use of XML as a meta data standard will save money and time in the hundreds of thousands of procurement transactions in the typical supply chain. Some estimates suggest a 90 percent reduction in purchase order costs. By putting the three big auto manufacturers on the same playing field and on the same team, B2B has demonstrated that it is ready for the big leagues and is ready to score. Stream-lining the procurement process has the potential to create the very tangible benefit of reducing the costs of building and, therefore, buying new cars.
Enlightened companies in the information age have realized that cooperation, even with competitors, improves efficiencies, costs and customer service. Other industries, such as chemicals, food ingredients and power utilities have already set up exchanges. XML facilitates the ability to share information and data using a common meta data format. For example, the data on invoices, bills of material, parts inventories and other forms can be defined in a common format across all the vendors. Not only can partners read any bill of materials, but also information on the bill of materials can be seamlessly transferred to other forms, such as invoices and inventories.
It is clear that B2B and XML will affect every business, worldwide. With a goal of cutting spending on parts procurement by 10 percent, when aggregated across all industries, the Web-based, XML B2B model has the potential of saving trillions of dollars in productivity gains. The great, retired hockey player, Wayne Gretzky was asked what made him great. He said, "Most people skate to where the puck is. I skate to where the puck is going to be." B2B and XML are where technology and e-business are about to be. The great industries will be the ones that follow Gretzky's philosophy.
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