If there's one factor that threatens to hamper the cost-cutting technology initiatives of old industry manufacturers, it's managing an extensive supply chain that includes thousands of companies.
That's why Johnson Controls Inc., a manufacturer of car parts and environmental systems, is launching a design and collaboration business-to-business exchange for its automotive suppliers, said Mike Suman, group vice president for e-business and marketing at Johnson Controls.
Johnson Controls said it wants to replace homegrown product development software with an online exchange that will address both the bidding process with suppliers and the management of the design collaboration aspects of developing a product. E-commerce software from MatrixOne Inc. in Chelmsford, Mass., will form the bulk of the technology infrastructure.
"We're looking at replacing a legacy system that doesn't add value," said Suman. "But you can't take a new piece of software, tack it onto an old business model and produce the results that you want." Suman added that Johnson Controls will also update its financial system and reduce paper-based transactions with suppliers.
But the new exchange, scheduled to go online in March, also puts the manufacturer in competition with the Big Three automakers, which are three of its biggest customers. They already have a massive $200 million auto industry exchange in Southfield, Mich.-based Covisint LLC.
Milwaukee-based Johnson Controls last year generated $6.8 billion in revenue, or 40% of its total, from contracts to build car interiors, seats and batteries for DaimlerChrysler AG, Ford Motor Co. and General Motors Corp.
Johnson Controls will use Covisint for its interactions with the Big Three but didn't want to wait for Covisint to gain industry momentum and start courting smaller suppliers to its marketplace, Suman said.
"The Tier 1 suppliers don't want to wait to see if Covisint will work out as the sole marketplace for the industry," said Thilo Koslowski, an analyst at Gartner Group Inc. in Stamford, Conn. "The automakers only want to deal with the big suppliers, but in order to get to efficiencies, you have to work with more than that."
Driveshaft and piston-ring maker Dana Corp. is also building a private exchange to work with its 86,000 suppliers. The Toledo, Ohio-based manufacturer, which drummed up 33% of its revenue -- $3 billion -- from sales to Ford and DaimlerChrysler, will also work with the Covisint exchange.
Another reason for building its own exchange: Johnson Controls draws 60% of its revenue -- $10.2 billion -- working with customers in the construction, energy and aerospace industries. Building a private exchange may assist the company with those suppliers as well, said Kevin Prouty, an analyst at AMR Research Inc. in Boston.
"They're not just an automotive company," Prouty said. "So they have a vested interest in not tying themselves solely to one exchange."
But Johnson Controls isn't alone in being stuck between a major business-to-business exchange and a hard place. Dofasco Inc., a $2 billion company that manufactures steel for the construction, packaging and automotive industries, is in a similar situation. The Hamilton, Ontario-based steel maker owns an equity stake in E-steeel.com, a steel industry business-to-business exchange, but may also join Covisint.
"I can see us belonging to multiple exchanges," said Doug Buchanan, manager of e-business at Dofasco. "It's a fact of life. Covisint is not going to buy steel for the packaging or other industries, but just for automotive purposes -- and that's just one segment [of our business]."
This story, "Auto-supply exchange targets small guys, too" was originally published by Computerworld.