General Motors E Procurement

• What business is the organization in?

General Motors, as a representative U.S.–based automobile manufacturer, has several characteristics that make it a perfect fit for e-procurement and a great example of how e-procurement is reshaping U.S. Manufacturing.

First, GM is the major part of a large supply chain. The scope of this supply chain and the role of GM in it is reflected in its annual $63 billion procurement expense. The cost savings associated with e-procurement will be immense.

Second, GM’s ability to push adoption of e-procurement by every link of its supply chain raises the volume of sales through its e-procurement system up to $300 billion–$500 billion per year. This will undoubtedly generate further cost savings associated with purchasing across the whole supply chain.

Finally, GM, perhaps because of its familiarity with the benefits of electronic data interchange with its suppliers and its dominant position in the supply chain, was one of the early adopters of e-procurement.

• What products are bought via e-procurement?

General Motors started seriously pursuing the idea of e-procurement in 1999, when its technology partners, i2 Technologies and Commerce One, started creating a B2B trading community dubbed TradeXchange. I2 Technologies of Irving, Texas, an advance planning software vendor, signed a memorandum of understanding with GM specifying that it would provide supply chain management services and business process expertise. I2 also agreed to provide the components of its Rhythm suite to GM and GM’s suppliers.

Commerce One of Walnut Creek, California, an ecommerce software vendor, was supposed to lead the TradeXchange project. Through the realization of this project, GM together with its Japanese affiliates Isuzu and Suzuki was in a position to gain significant benefits associated with e-procurement. However, soon the opportunity arose to push the expectations of e-procurement even higher.

• What savings were realized? (financially)

GM and its B2B partners are testing the benefits of e-procurement. In the brief period between the launch of TradeXchange and March 2000, GM purchased more than $4 million of MRO supplies from the catalogs of five suppliers enrolled in the network. In late January 2000 the company sold seven presses worth $1.8 million in an online auction. It also bought $1.7 million of materials in another auction. Before a joint e-procurement initiative, Ford also led its first auction. The auction for an undisclosed but mainstream car part resulted in double-digit savings on the $78 million supply deal.

• How were those savings realized? = What changes were made to the procurement process? + How does the computer system work?

➢ Reduction in time and cost of procurement systems development and implementation at the facilities of GM’s partners.

➢ Significant reduction in ordering costs and in the cost per item of goods purchased.

➢ Quicker information flows and better information sharing throughout GM’s supply chain.

➢ Better forecasting and planning for GM and its suppliers.

➢ Supply chain optimization.

➢ Build-to-order capabilities, shorter product development cycles, and better customer service.

➢ Favourable environment for joint R&D, including product design.

• What problems occurred during the implementation process?

One is contradiction of the requirement of stable relationships between GM and its suppliers traditional to the automotive industry, and the competitive tender model that seems to be incorporated in the idea of a B2B marketplace. How GM will deal with this contradiction remains largely unclear for now.

GM should also block the problem of distributing power between itself and its suppliers to ensure the fast and effective adoption of e-procurement. If GM, as a controlling member of the supply chain, absorbs all the benefits, there will be little incentive for other members of the chain to participate. Thus, the ability to establish and maintain cooperative strategic relationships with suppliers is very important for success.

First-tier suppliers may be against the adoption of e-procurement and, consequently, slow in its adoption, simply because the way e-procurement structures OEMs’ procurement allows for greater competition from outsiders and the possibility of making sensitive information on pricing and supply deals available to competitors. A similar issue appears with GM’s, attempt to develop industry wide standards of e-procurement. Key to the success of a single e-procurement network for the U.S. automotive industry, a goal pursued by GM, Ford, and DaimlerChrysler in their joint venture, is involving other leading automakers.

If GM and its current e-procurement partners succeed in developing the industry wide standards, there still remains a systems integration issue. Currently, for example, Ford and GM are running two separate e-procurement systems. The complexity of the task of integration will only increase with the other OEMs becoming members of the industry wide e-procurement network.

Still another concern about developing full-scale e-procurement solutions arises from the largely raw, untested nature of the technology that is at its core. Competition is exerting a strong impetus to implement new e-business technologies, including e-procurement, in the automotive industry. These technologies bring great benefits that have the advantage of affecting the bottom line, even in the short run.

However, as the experience with Y2K shows, neither government nor business, with all the resources available to them, are 100% ensured against major technological traps. Rapid implementation of e-procurement technology may result in significant waste of resources for an early adopter like GM.