Picking Up Speed
Two leading carmakers roll out online procurement initiatives, boosting e-commerce.
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Gary Ball used to be a frequent flier. The Canadian businessman had to shell out thousands of dollars on travel expenses to stand for eight hours straight at auctions in General Motors plants around the United states, waiting to bid on equipment. The other day Ball, the president of Ball Machinery Sales in Toronto, did something different. He studied photographs and drawings of a used press from Indiana before placing the high bid of $375,000 for it-online.

Everything Ball wants is now just a mouse click away. No more days gone from the office, no more money spent on airplanes, hotels, restaurants and rental cars. "I've already sold the press and I haven't even seen it yet," said Ball, whose company refurbishes, upgrades or alters equipment and then sells it back to GM or its suppliers.

Ball is one of the thousands of suppliers logging on to a whole new way of doing business; a business-to-business purchasing network that allows companies to buy and sell everything from paper clips to auto parts in a global virtual marketplace. The business-to-business online revolution is being led not by new economy players but the heavyweights of old industry: GM and Ford, both of whom hope to save billions by taking their business onto the Information Highway.

So revolutionary is the nation's two biggest auto makers' e-business play that Commerce One, the company guiding GM onto the Internet, talks in terms of BGM (before GM) and AGM (after GM). Ford has teamed with Redwood Shores-based Oracle. Both Oracle and Commerce One make software that allows companies to set up online marketplaces and manage their supply purchases over the Internet GM and Ford-as well as Chemdex and PlasticsNet, to name two-are not only transforming the way that buyers and sellers do business, they're changing the very nature of their industries. To wit: The Boston Consulting Group predicts that as much as one-fourth of all U.S. business-to-business purchasing will take place on the Web by 2003. BCG predicts that B-to-B purchasing in the United states will grow by 33 percent a year, reaching $2.8 trillion by 2003. By comparison, business-to-consumer online sales are dwarfed.

"GM and Ford stepping up is the turning point in the business-to-business online revolution," said Dan Garretson, senior analyst in the business e-commerce research team at Forrester Research in Cambridge. "Procurement is now ready for prime time. And we see all the vendors positioning themselves around these marketplaces that companies are setting up." GM, which launched the Trade Exchange (www.gmtradexchange.com) as part of a broader e-business push, is definitely sending the message, "Do e-business or don't do business with us." All of GM's business will go through this Web site, company officials pledge. That pledge will affect a lot of businesses. GM spends about $87 billion a year and works with about 30,000 suppliers. Ford spends almost as much.

GM and Ford have a lot to gain from online buying and selling: The Internet will reduce operating expenses, inventories and delivery time to consumers. For example, the automakers expect to sharply reduce the estimated $100 it costs to process each of the hundreds of thousands of purchase orders they issue each year. There's another upside for GM and Ford: They expect their trade exchanges to generate several billions of dollars in transaction and advertising fees a year in five years.

But automaker officials contend suppliers also will benefit. "The primary motivating factor is speed," says Dan Jankowski, spokesman for GM. "GM wants to speed up how it develops products and gets them to market. The GM Trade Exchange is going to enable GM to work with its suppliers in a far more efficient manner using the Internet. Supply on a real-time basis is going to make us more responsive."

GM and Ford will be able to deliver information on car buyer preferences to their supply chains in real time, speeding up the time it takes to get those products to market, Jankowski says. Initial reaction from suppliers has been "skeptical" as GM rolls out its Trade Exchange, he says, but as suppliers sit down with GM representatives for a few hours and hear about the potential time and cost savings, they get excited about the prospect. "We have set the tone; `You can't hide your head in the sand anymore,'" Jankowski says. "E-commerce is a way of life. It doesn't matter if you are GM, a mid-tier or small company, you have got to get into e-commerce for your very survival. It's a competitive necessity."

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