OEMs and suppliers are implementing B2B electronic communication systems such as EDI, shared service model and on-demand collaborative services to reduce operational costs and enhance efficiency.
Over the past ten years, the automotive industry has experienced a dramatic shift. An industry once dominated by North American and European name plates has been replaced by a new set of global joint-ventures and up-and-coming Asian giants. Among the core elements facilitating this shift is Information Technology.
More than thirty years ago, automotive OEMs and suppliers sought to reduce costs and improve the efficiency of supply chain operations by “digitising” business processes. For providing a structured, standardised means for inter-company communication, leading OEMs have embraced Electronic Data Interchange (EDI) to reduce time and costs across purchasing, materials management and logistics processes. Unfortunately, EDI deployment and wide-spread adoption proved costly and complex. Variations in EDI standards used by OEMs (e.g. ANSI X.12, E5, EDIFACT, VDA) created technical and economic complexities for suppliers. Supporting more than one OEM customer in a global market often meant that multiple systems were required by the supplier. Adding to this complex environment were the new business challenges surrounding the development of new markets (e.g. China), shorter vehicle life-cycles and continued pressure on cost.
With the boom of the Internet, new options became available to address this complex web of interconnected businesses. Electronic marketplaces, industry hubs and application service providers offered a new model promising ubiquitous access to application services (including web-based EDI) and information without the steep investment of “on-premise” solutions. For the automotive supply base, the shared services model offered flexibility, an attractive price point and shorter time-to-value. Unfortunately, legacy integration and the increased visibility into operations and supplier cost structures (via auctions) continued to limit widespread adoption of the shared services model.
Following the burst of the Internet bubble, survivors in the marketplace / industry hub space formed two camps—Value Added Networks (VANs) and Application Service Providers (ASPs). EDI continued to be the dominant mode of OEM endorsed electronic communications and VANs helped suppliers manage the cost and complexity of supporting multiple standards with multiple customers. In the ASP “camp”, OEMs were less than eager to adopt. “Software-as-a-service” was economically attractive, especially for smaller suppliers and non-mission-critical applications yet, reliability, security and application ownership over-powered the economic benefits. Instead of relying on a third party IT solution provider, OEMs and large Tier 1s began to develop their own flavour of “shared services” using supplier portals.
As automotive markets matured in Asia, the race was on to create globally shared supply chain processes. In addition, Lean, Just-in-Time and Just-in-Sequence disciplines demanded shared, near-real-time information delivered to all stakeholders on a global basis. EDI and supplier portals continued to offer connectivity and a degree of collaborative benefit for a uniquely defined community. However, moving beyond the “community” meant compliance with different portal and/or EDI standards.
In 2004, the US National Institute of Standards in Technology (NIST) published a study that characterised the problem of technology-based barriers between different supply chain communities and systems. The term used was “interoperability” and the lack of it was costing US businesses US$ 15.8 billion annually. The NIST findings sparked a series of OEM, supplier and IT service provider sponsored projects targeted at technology standards and shared services.
In 2005, the Automotive Industry Action Group, a North American consortium of automotive OEMs, suppliers and information service providers, joined its counterparts from Europe (Odette) and Asia (JAMA / JAPIA) to develop a recommendation for B2B electronic communications to support the rapid growth in the Chinese automotive market. The Chinese B2B market was characterised by diversity. From simple fax and email to spreadsheets and traditional ERP platforms, the options for choosing a B2B communications solution were broad. Combined with the rapid pace of systems development and the lack of legacy system encumbrances, the Chinese market posed a significant challenge and a significant opportunity to harmonize standards or set a course for the next generation of B2B standards. With the support of the Chinese government, industry and technology consortiums, the “JAIF (Joint Automotive Industry Forum) China B2B Recommendation” was published to provide guidance to OEMs and suppliers in the selection and use of EDI messaging standards in China.
Though the recommendation provided significant insight and guidance for the use of B2B EDI, message routing and translation was only one component of a much larger set of technology requirements for systems interoperability and inter-organisational collaboration.
In a July 2006 study of OEMs and suppliers, Gartner found that “suppliers believe that enhanced communications initiatives, accelerated decision-making processes and real-time information provide the best opportunity to minimise growth inhibitors and realise each others’ business objectives. More than two-thirds of automotive suppliers view IT as a key enabler for such collaboration efforts, helping improve relationships with OEM clients.” Process collaboration required a new set of technical capabilities with a heavy emphasis on personalisation, reliability, global reach and security.
Ushering in a new era of on-demand services, collaborative tools and personalised workspaces, Web 2.0 initiated a new round of IT systems comparisons - evaluating the costs and benefits of traditional “on-premise” software (e.g. software that is installed, maintained on site) vs. the new world of on-demand services and solutions. With proof points in Customer Relationship Management (e.g. SalesForce.com) and a growing acceptance of consumer oriented on-demand applications and networks (e.g. Google gadgets, mySpace etc), OEMs and large suppliers carefully embraced “on-demand” services within the context of their existing supplier portals and electronic communities.
In this new world of “on-demand” solutions and services, security and interoperability remained sticking points for broad-based adoption. From a vendor’s perspective, an on-demand service in a multi-tenancy environment could address both issues so long as the entire community used the same application (via the web or, in combination with on-premise software). But the “uber-application” concept showed only moderate acceptance because of the imbalance of cost to benefit. The single application in the cloud lacked the “freedom and flexibility” demonstrated by consumer-based on-demand applications and networks.
Setting the pace, SalesForce and Google introduced a variation of the “uber-application” providing a web-based combination of core and complimentary services (e.g. AppExchange, Google Docs and Spreadsheets) designed to meet specific and general business needs. Additional proof points soon followed. In March 2006, Aberdeen Group published a study that demonstrated the increasing use and performance benefits of “on-demand” supply chain management solutions. In the study, more than half of the participants (a global cross-industry sample of 180 companies) indicated their current or intended use of “on-demand” services in support of supply chain processes. For those currently using on-demand services, the benefits cited were: improved implementation speed, maintenance ease and return on investment (Figure 1).
Seeing the beginning of sustainable shift in the purchase and use of “on-demand” services, major ERP and office productivity vendors (e.g. Microsoft, Oracle and SAP) ramped up their “on-demand” offerings.
But the question remained, how could OEMs and suppliers blend the promising capabilities of Web 2.0 with existing investments in mission critical legacy applications? An answer surfaced with the blend of the old and the new eras of on-demand services. In the dot-com era, industry hubs were held to substantial security and reliability standards to ensure fair trade. In addition, since portal technology and on-demand services were relatively new, OEMs and large suppliers leveraged these unique security services to create an “on-demand” service of their own – exposing legacy applications to their communities and facilitating common supply chain processes. Now, with more than six years of IT evolution, this same “secure portal” framework would prove useful for exposing legacy applications, and securing the nimble services of the Web 2.0 era.
Cracking the code on security and interoperability sets the stage for wide-spread use of on-demand collaborative services. Though cultural issues such as application ownership and control impact adoption speed, security services can help bridge the gap between technical capabilities and competitive culture. Reducing time-to-market and cost will continue to be strong incentives for on-demand collaborative services adoption. Combined with the Aberdeen findings, Gartner helps pinpoint additional high-potential areas of adoption (Figure 2).
Beyond supply chain and quality, an area of particular interest is “innovation”. For suppliers and OEMs, innovation is critical to winning and retaining new business. Utilising a globally integrated set of secure, on-demand collaborative services (e.g. design, project management, social networking) can significantly increase the horse-power of innovation. Providing greater visibility and leveraging the speed and contribution of the “community”, ideas can be generated and vetted more quickly. Technology tools and resources can be selectively leveraged across a fluid set of knowledge workers, and common processes can be propagated to improve efficiency, reduce waste and increase speed to market.
In addition to the their growing use across global manufacturing and transportation management, on-demand collaborative services are being embraced by government agencies (read law enforcement, defense, healthcare), the energy sector and healthcare industry.
As the world of on-demand collaborative services matures, new capabilities will rise and fall, however, the die is cast and the industry is moving to on-demand.
