E-marketplaces must deal with different XML flavours

In just about every industry – from automobile manufacturing to chemical production – an electronic marketplace has been created to handle the buying and selling of goods and services between manufacturers and suppliers. One common bond that unites these markets is the hope that the automation of exchange processes will dramatically cut time, cost and waste.

One thing’s for sure: such marketplaces are big business. Cambridge, Mass.-based Forrester Research Inc. estimates that trading in Web-based markets accounted for US$251 billion in sales last year across 13 industries, including construction, aerospace and defence.

But while technology is a key enabler behind the scenes, one of the biggest challenges on-line market creators face is in translating paper-based processes to more efficient, electronic approaches.

For example, contracts that involve complex sourcing or parts designations may require detailed interaction between the buyer and seller outside of the e-marketplace. The buyer may even disclose engineering specifications, delivery timetables and other sensitive data to the marketplace’s participants. But instead of shuffling purchase orders back and forth or faxing production schedules, various procurement steps can be handled electronically.

Several of these virtual bazaars have been founded by buyers.

A prime example of that is Covisint LLC, a business-to-business e-marketplace created by Ford Motor Co., General Motors Corp. and DaimlerChrysler AG last February. The automotive exchange could potentially handle more than US$240 billion in annual procurements of raw materials and vehicle parts by these manufacturers alone.

One-Stop Shopping

Before e-marketplaces began popping up last year, “buyers were tied to a single supplier or a handful of suppliers over tightly controlled extranets,” said Daniel Garretson, an analyst at Forrester Research. “Now, with e-marketplaces, they can do one-stop comparison shopping across thousands of suppliers and go to the best source in real time or near real time.”

With a slowdown in vehicle sales predicted for this year due to the softening economy, the big three automakers have placed increased pressure on their 150,000 suppliers to reduce costs.

Detroit-based GM plans to reduce the average cost of processing a purchase order from US$100 to US$10 by using Covisint. The world’s largest automaker spends more than US$80 billion in procurements each year, so even a minor improvement in how these activities are handled could save the company billions.

Most of the big automotive suppliers acknowledge that they’ll work with Southfield, Mich.-based Covisint, but that hasn’t stopped them from creating e-marketplaces of their own. Johnson Controls Inc., a manufacturer of car parts and environmental systems in Milwaukee, plans to launch a design and collaboration exchange for its 600 suppliers next month.

Mike Suman, group vice-president for e-business and marketing at Johnson Controls, said the company needed to replace its home-grown product development software with an on-line exchange that will address the bidding process with suppliers and the management of design collaboration. E-commerce software from MatrixOne Inc. in Chelmsford, Mass., will form the bulk of the technology infrastructure.

Johnson Controls generated US$6.8 billion in revenue last year – or 40 per cent of its US$16.14 billion in total sales – from contracts to build car interiors, seats and batteries for the big three auto manufacturers.

But Suman said the company also works with non-automotive customers and other automakers, such as Volkswagen AG in Germany, that don’t plan to join Covisint.

Dana Corp. is another major automotive supplier that’s building a private e-marketplace. Officials said Dana is building its own exchange to handle purchasing transactions with its 86,000 suppliers. But the Toledo, Ohio-based driveshaft and piston-ring maker, which drummed up one-third of its US$13 billion-plus revenue from sales to Dearborn, Mich.-based Ford and Stuttgart, Germany-based DaimlerChrysler, will also work with Covisint.

Perhaps the greatest technical challenge facing e-marketplaces is the need to integrate the various back-end systems of participants with the exchange platform.

To process transactions electronically, participants need a format for defining the data elements in documents such as invoices and purchase orders. XML provides a common method for identifying what data fields contain, thereby making it easier to swap documents electronically. But as the e-commerce industry has grown, the number of XML flavours have multiplied.

The top three e-commerce software vendors each use different XML vocabularies for defining data. Commerce One Inc. in Walnut Creek, Calif., uses Common Business Library (CBL); Ariba Inc. in Mountain View, Calif., uses cXML; and Oracle Corp. uses OAG XML.

Vocabulary Problems

Those differences can create problems when an e-marketplace must unite systems from hundreds or even thousands of trading partners. For example, one XML vocabulary may list the second line in an address field as “Address 2,” while a different XML vocabulary may assign “Apartment No.” to that same field.

Covisint is being built using technology from Commerce One and Oracle, so it must contend with the CBL and OAG XML formats. In addition, the big three automakers and most of their top suppliers also use electronic data interchange (EDI) systems for processing invoices and communications, adding yet another layer of confusion.

“The Web platform has to use XML to parse documents, but we also have a large customer base that’s into the EDI infrastructure,” said Bernie Malonson, product marketing manager at Covisint. “They just got the EDI equation straightened out recently, and so we can’t ask them to abandon it until we can prove that XML will work.”