Covisint

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

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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  Effects

of 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

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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  Benefits

of 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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