Covisint is now ready to allow massive deals to take place between auto manufacturers and their suppliers. But there are pitfalls it could still encounter. If the project fails, the overall prospects for online procurement would be badly damaged. However, its success would establish a trend that others would find hard to resist.
Major automotive component suppliers such as ArvinMeritor, BASF, Federal Mogul and Visteon have already agreed to use Covisint as their main exchange. If it lives up to its members' expectations, the new service will allow them to swap information and establish contracts more quickly and cheaper than they do at present. Its founders, Ford, General Motors, DaimlerChrysler, Renault and Nissan assure their partners that the estimated E350 billion per year of transactions conducted through the system will be secure and confidential. The system should also accommodate online joint product development and virtual collaboration at all levels of the supply chain.
The cost reductions should allow suppliers to offer their products at more competitive rates, while manufacturers should be able to pass on savings to consumers. However, whether all of this will actually happens is by no means certain, and will have strong implications for B2B in other industries. The US Federal Trade Commission and the German Bundeskartellamt were both initially suspicious of the exchange, believing it would be used anti-competitively. And a B2B project on this scale is unprecedented. If suppliers were to lose confidence in the impartiality of the system the whole project could still run into major problems.
Other companies that are involved in major procurement deals will view Covisint as a guide to establishing online B2B agreements. Many are skeptical about whether B2B exchanges in general will provide the cost savings their proponents predict, so any signs of failure or disaffection with Covisint will attract a disproportionate amount of publicity.
Nonetheless, the chances of catastrophe are fairly low. All the partners recognize that they are likely to strengthen their own positions and returns in the long-term by taking part in Covisint. And if they are proved right, the case for online procurement will be massively strengthened.