Covisint automotive supply chain portal in trouble

The death knell may well be sounding for Covisint, the highest profile automotive web exchange, created by Ford, DaimlerChrysler and General Motors to handle direct and indirect materials and services purchasing from their suppliers over the web. This week, the company axed 25% of its US workforce and now seems about to suspend its supply chain management (SCM) services – its fundamental raison d’être. The news follows the resignation last week of Kevin English, Covisint’s president and CEO after just 14 months in post, ceding responsibility to Harold Kutner, formerly vice president of global purchasing at GM. With 100 staff gone, leaving just 300, it is hard to see how its grand plans – transformational, technological and global expansion – can continue. The announcement will send shock waves through manufacturing way beyond the automotive sector. Covisint, founded two years ago in a fanfare of virtually limitless funding and expectation, was supposed to revolutionise supply chain operations in automotive for the electronic portals age, with true web-based ‘collaborative commerce’ slashing costs. The figures and claims were astronomic, and with multiple billions of dollars of purchasing, it seemed the potential primarily for ripping cost out of supply chains, secondly for saving time, and thirdly for efficiency, were huge. It should have served as a beacon for the rest of manufacturing across the vertical industry sectors. It didn’t. An admission as clear as this of such apparent failure will cast doubt on the sustainability of all such ventures. However, it shouldn’t. Covisint was always going to struggle – and it did. As a public (as opposed to private, for trusted partners only) trading exchange, a huge percentage of its planned activities and benefits were destined to be unrealistic dreams. Informed opinion for the last 12 months has been strongly against its viability, mostly on issues not of technology, but absolutely of trust, competition and suppliers’ business culture. Covisint’s development plans have been dogged by collapsing tech stock prices it’s true. But the real problem was suppliers seeing their profitability, indeed lifeblood, under serious threat. It’s one thing to share data on production schedules, inventory and so forth; it’s another to reveal pricing information to your competitors and then, as preferred bidders, be compelled to bid down on that. And having little choice in the matter when the OEM is a very big customer hardly makes the bitter pill any easier to swallow. Discomfort, mistrust and the inevitable feeling of having been beaten roundly about the body by the web tool is unlikely to curry favour. Today, best practice supply chain portal development is around private exchanges, hubs or portals. They are founded on win-win relationships, where the cost savings are ideally shared among the supply chain partners, likewise the time and inventory savings and the efficiency gains. Indeed, in a perfect world – even a slightly imperfect one – the whole supply network edifice thus becomes more flexible and agile in terms of matching up to opportunities and being able to say ‘yes’. And that’s what the suppliers are doing: the players are building their own private networks for CPFR (collaborative planning, forecasting and replenishment) and SCM. Covisint now says it will continue to handle web supplier reverse auctions for the OEMs and keep up its inter-company enterprise systems integration development services work. Indeed, English is on record as saying: “In the past year, Covisint has grown from a sound idea to a solid business with a bright future… With the company near profitability, my goals are accomplished.” But Covisint has become little more than a place for procurement of certain goods. And industry watchers will doubt even the sustainabilty of this remaining model. Yes there is plenty of good experience and solution potential there, but there are other specialists to fulfil that technical/business role. Key stake holders – the big three, Nissan, Renault, Peugeot-Citroen enterprise software giant Oracle and e-procurement software and platforms specialist CommerceOne – may well have to think again.