Covisint (A) : The Evolution of A B2B Marketplace

Covisint (A) : The Evolution of a B2B Marketplace
Introduction
 US Automotive Industry around 1970.

 Dominated by Ford Motor, General Motors, and
DaimlerChrysler--Big three (OEMs).
 Industry was rigidly hierarchical, with top OEMs
ordering from large Tier 1 suppliers who in turn
bought parts from Tier 2 suppliers and so on.
 This hierarchical industry structure resulted in:
◦ Cumbersome processes
◦ Inefficiencies,
◦ Distrust among players
◦ As a result, 3 OEMs became:
◦ Less competitive and inflexible to market need
◦ More complex and costly
Introduction
 Japanese OEMs supply chain was :

◦ Lean and Agile
◦ Flexible Manufacturing
◦ Simple (less number of players)
◦ Kieretsu-style
 This supply chain enabled the Japanese OEMs to :
◦ Use build to order strategy
◦ Deliver car quickly and at a lesser cost
 Effectsof Japanese OEMs on US Automotive OEMs:
 Increased pressure on Big 3 to reduce cost, and
manage supply chain complexity.
 Big 3 were losing market share to Japanese OEMs .
Introduction
 What other problems were faced by Big 3 – OEMs.

 Changes in the automobile markets:
◦ Automobile were becoming more engineered and highly
complex.
◦ Customers' need were changing
◦ Real car price fell 2.6% between 1997 to 2001.
◦ Union contract of Big 3 increased the cost $1800 per
vehicle.
 It has increased pressure on the US OEMs to:
◦ Simplify its supply chain and reduce the cost
◦ Become more agile and competitive.
◦ Adopt build to order model to satisfy customers
changing needs.
Introduction
 Japanese OEMs business Model

◦ Build to order – ‘ship in five days’
◦ Offered few options on the different models
◦ Maintain large inventory of cars at their U.S. dealers.
◦ Allowed dealers to ship cars to any other dealer for
customers requirements.
 US OEMs Planned business Model
 Build in five days model
 Deliver the exact set of options each customer wanted
(Dell Model)
 Lighting speed (reduce cycle time from 92 to 13 days)
Introduction
 What supply chain changes were decided to
implement the new business model by US OEMs?
 Shift from non-modular design to modular design
Introduction
 Benefitsof Modular approach:

 Reduced number of supplier in Tier 1
 Modules can be reused across the product lines.
 Cycle time and costs could be reduced (21% of
development costs can be slashed)
 Other key change:

 Using online technologies to support collaboration
and performance tracking.
 Benefits:
 improvement in information flow
 Shorten product development life cycle from 6 to 3
years.
Introduction
 To support collaboration via online technology, Covisint
was launched by BIG 3 in February 2000.
 Joined by Renault and Nissan and other 25 suppliers.
 Employees were shifted from Big 3 to Covisin.
 Covisint was run by 3 CEOs.
 400 consultants were brought in for go-to-market
strategy.
 Decided that Covisint would operate as ASP –
developing and hosting supply chain applications for the
industry.
 First service offered – online auction – streamline the
procurement process and reduce OEMs costs.
 Softwares were licensed for speed to market (for 2
years)
Covisint
 Auction was successful for 3 OEMs.

 Suppliers were less enthusiastic Covisint because:
◦ Mean to reduce their price/profit margin
◦ Turn parts and supplies into commodities.
◦ Biased exchange
Covisint
 What problems were faced by Covisint?

 Covisint started developing own software for different
services.
 OEMs controlled the selection of new projects.
 Covisint became ‘skunk work’ – organization that
served multiple masters.
 Developed projects for each OEM which was not
adopted by other OEMs.
 Suppliers had not adopted standard software because
of their own old system – high cost of
switching/integration.
 Suppliers were trading online but using faxing, calling
, and printing.
Covisint
 What Covisint was not so successful?

 Distrust in the supply change
 Organizational and inter-organizations changes were
required.
 Lack of industry design standard to reuses
components across product lines.
Covisint
 What was the contribution of Kevin English?

 Reduced number of consultants from 400 to 50.
 Cut costs from 20 million to 8.5 million per month
(within a year).
 Set target to make Covisint profitable by Q4 2002.
 Specifically focused on:
 Cost reduction by reducing employees
 Revenue enhancement form suppliers
 Organizational changes – ‘covisint culture’
 Product/ Market strategy
Covisint
 Product/market strategy
 Cut products from 17 to 4 (cancelled because it was
developed for individual OEMs)
 Focus: offer products that can be used by all stakeholders.
 Retained ‘Industry Portal’ – to connect industry, facilitate
information flow and develop standard practices.
 Received 16 proposal from the suppliers and OEMs by
2002.
 Revenues from portals:
 Up-front fee for customizing website.
 Connecting portal to IT system of host and trading
partners.
 Hosting fee from owner and subscription fee from traders.
Covisint
 Product/market strategy
 Transform Covisint from developing software for
OEMs to value added service provider for
stakeholders.
 Offered Powerway Advanced Product quality
Planning service.
 Organizational Changes: reorganize company into 2
SBUs.
 Strategic sourcing – manage company’s supply,
pricing, and auction capabilities.
 Portal and Connectivity – developing infrastructure to
support communication and transactions between
OEMs and suppliers.
Covisint
 Other changes:
 Invited suppliers on board through equity
investments.
 Established global customer council.
 Resigned in June 2002.
 CEO Shuffle (2002-2003)
 Kutner, former VP, GM, joined as CEO.
 Strengthen suppliers perception – attempt to exert
OEMs power to supply chain.
 Continued the cost cutting measures of Kevin English.
 Focus on reducing employees, cutting travelling cost
and other expenses.
 Focus on revenue enhancement through services.
Covisint
 Appointed Swift as CEO in February, 2003.

 Resigned within 31 days.
 Why?
 Most product lines were losing money.
 Auction was becoming commodity 9Not having own
software) – Freemarket as leader.
 Suppliers did not trust OEMs power and control.
Covisint
 What situation was faced by Bob Paul?

 Covisint Vision: to streamline processes and create
single platform for information sharing and business
transaction.
 Problem: OEMs used Covisint to solve their
problems.
 Technology can not solve problems unless focus is on
customers and suppliers.
Covisint
 What was Bob’s assessment of the Covisint business

model?
 1. ‘messaging’ – transfer of information back and
forth in the forms of docs, reports, and files.
 All players (OEMs, suppliers) use multiple versions
of documents, and use different means to share
information – high complexity.
 Covisint – can become hub and provide computer to
computer messaging service – translating different
format into standard one.
 Also influence industry players to adapt standard
format over time.
Covisint
 What was Bob’s assessment of the Covisint business

model?
 2. Rationalization of product strategy
 Portal project is important.
 Powerway and auction products need to be divested.
 3. Governance of Covisint
 It should be perceived neutral, independent
information and transaction hub.
 Whether OEMs would consider exiting Covisint by
selling company to third neutral party?
 Would covisint find a buyer that allow him to keep the
company intact and independent?
Thank You
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Covisint (A) : The Evolution of a B2B Marketplace

 US Automotive Industry around 1970.

 Japanese OEMs supply chain was :

 What other problems were faced by Big 3 – OEMs.

 Japanese OEMs business Model

 Benefitsof Modular approach:

 Other key change:

 Auction was successful for 3 OEMs.

 What problems were faced by Covisint?

 What Covisint was not so successful?

 What was the contribution of Kevin English?

 Appointed Swift as CEO in February, 2003.

 What situation was faced by Bob Paul?

 What was Bob’s assessment of the Covisint business

 What was Bob’s assessment of the Covisint business

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