While Covisint LLC is still in the midst of deploying all of its online business-to-business marketplace functionality, online procurement via its quote manager for electronic RFQs appears to be gaining traction in the industry, to the tune of US$96 billion for General Motors Corp. and its suppliers.
Although there was no official announcement by either Covisint or General Motors, the giant automaker revealed at a management briefing in Traverse City, Mich., run by the Center for Automotive Research, that the total value of transactions it conducted over Covisint in the first seven months of Covisint’s operation totaled $98.2 billion. The centre is based in Ann Arbor, Mich.
Of the total, $96 billion was done through Covisint’s quote manager, which is used for procurement of direct materials rather than MRO (maintenance, repair, and operations) products, according to David Barnas, a GM spokesman.
Despite the huge amount of spend, which according to Barnas actually represents contracts going out over the next six years, the benefits do not come from finding either new suppliers or from reducing the piece price of any products.
New suppliers are not readily found when procuring highly engineered systems.
“There are only a handful of suppliers that are capable of giving us what we need,” Barnas said.
The reduction in cost actually came in the time it took to close the deals.
“When you think about cost, we saved time doing RFQs electronically instead of the old system,” Barnas said.
Although GM offered no time frame, a Covisint spokesman said one large OEM, which he declined to name, accomplished in two days what otherwise would take 10 months for certain business processes by using Covisint.
“When you can take almost 10 months out of a process, you are bringing significant savings to you and the other suppliers,” said Dan Jankowski, vice president of Global Communications at Covisint.
The breakdown for the remainder of the $98.2 billion spend via Covisint was $200 million through catalog buying of indirect goods and $2 billion through online auctions where GM sold back into the market materials it no longer needs.
“If we have stamping machines, for instance, that we no longer need, there is still value that a supplier can use,” Barnas said.
GM’s annual spend on direct materials is about $86 billion. The $96 billion done in the first seven months of Covisint’s existence represents the final sourcing decisions for systems and components for vehicles through the 2006 model year, Barnas said.
GM and the other automakers are trying to reduce time to market through online procurement as well as using design collaboration to take time out of the process.
“We are looking at ways to develop our systems faster and give suppliers requirements they need to produce parts which they in turn can relay to their suppliers all the way down the chain, and that is where the real benefit is,” Barnas said.
Using Covisint for design collaboration, considered by most industry analysts to be one of the best ways to reduce time to market, is still to be determined, said Barnas.
“We know we want to do that but we haven’t started that. The entire industry recognizes the need to do design collaboration, either through Covisint or on their own,” Barnas said.