Engineering companies of all sizes are turning to the Internet to find parts suppliers, shaving sales and procurement costs in the process. Companies seeking parts suppliers can post requests for proposals on a Web site. The automakers chose to work together after General Motors and Ford announced on the same day in November 1999 that they planned to launch their own proprietary business-to-business exchanges to host supplier auctions. As evidence of the trend toward moving the vendor and supplier relationship from fax machine to Internet, big three automakers—DaimlerChrysler, Ford, and General Motors—banded together in February to create a Web-based marketplace called Covisint, where suppliers bid for the automakers’ parts contracts. Renault and Nissan signed on later and the site was unveiled in October. With the system, one of the automakers will be able to post data for a part it wants made for a car. However, without technology-equipped suppliers willing to use the service, Covisint could experience a dearth of business.
Chris Yatsko, a senior mechanical engineer at the Delaware Valley Industrial Resource Center, has found that companies too small to maintain a design engineering staff are generally too small to house purchasing or sales departments. And that’s a problem when the small companies need to shop for parts suppliers, Yatsko said.
The industrial resource center he works for is part of a network of seven economic development organizations set up across Pennsylvania in 1988 to aid small manufacturers. Yatsko is contracted by these companies to do design engineering and drafting work. Many of them also outsource their information technology consulting work and human resources needs to the economic development organization.
“A lot of these companies are startups, where the guys did the designs on the back of a napkin and they need to make it more formal to get proper quotes for parts from suppliers,” he said. In addition to not having the design experience, many company owners don’t have the time, experience, or manpower to find suppliers to make their parts. Often, small companies have a hard time finding manufacturers that will charge a competitive price to make a small number of parts.
“These companies don’t have an established supplier network or anything like that, and they may not have the time to research a bunch of companies and then write requests for quotes to the suppliers,” Yatsko said.
Last summer, his economic development center turned to the Internet to find suppliers. Many manufacturing companies, like the ones Yatsko serves, have been turning to the Internet-based businesses that are springing up to link manufacturer and supplier.
The Web-based business that Yatsko’s organization uses is called ManufacturingQuote.com, which went online in February. Mitch Free, president and chief executive officer at the Smyrna, Ga., company, said his Web site is a way to connect job shops to companies that purchase custom manufacturing services. Via the Web, buyers submit a request-for-quote that specifies the parts they need made, the price they’re willing to pay, and when the parts are needed, Free said. When a supplier responds to a request on the Web site with a proposal, the buyer is notified via e-mail and told to check the Web site to see the proposal. The company putting forth the RFQ remains anonymous to bidders until that company has selected a supplier, Free said.
In Internet parlance, Free’s firm is called a business-to-business e-commerce company because companies use the service to buy and sell from each other. Business-to-business Web-based services are a quick-growing sector of the e-commerce marketplace.
One reason for their explosive growth may be that services such as Free’s save time and money for the companies that use them, Yatsko said.
Customers at the ManufacturingQuote.com Web site don’t need any special computer equipment other than a personal computer with Internet access and a modem. Even the smallest manufacturers and job shops usually have at least one computer, meaning the initial setup to access the Web site is often low or at no cost.
“Just from the standpoint of not having to stand at the fax machine and fax out five different RFQ packages to five different potential suppliers, it’s a huge improvement,” Yatsko said.
Before using the Internet service to locate suppliers for the small companies that his economic development center aids, Yatsko and his fellow engineers used supplier contacts they’d built up over many years in the engineering business. But even using established contacts didn’t make for a streamlined bidding process, he said.
“It was much more labor intensive to be faxing or e-mailing the designs to suppliers,” he said. “And it wasn’t the most terribly thorough way to get designs to the suppliers. Having the whole process automated makes a big difference compared to before, where if you did an RFQ and then the design changed, you’d have to print out five more fax sheets and then send them out. It chewed up all sorts of paper.”
Posting RFQs on the Internet
Engineering companies—the companies looking for suppliers—post their RFQs on the Man-ufacturingQuote.com Web site, although they don’t include their names. If they’re submitting designs, they include a portable document file (PDF) of the illustration. The design can be read via Adobe Acrobat software on any computer, said Chris Rockhold, who also makes use of the business-to-business service. The PDF file does away with the need for companies to send computer-aided design files that often need special viewers to be read.
Rockhold is a mechanical engineer at Payload Systems in Cambridge, Mass. The company designs payloads and provides other engineering services for space flight. He began posting RFQs on the service two months ago. Last year, when Rockhold moved from an engineering job in California to Payload Systems in New England, he left behind most of his contacts at California job shops. He also found that many of the California shops weren’t competitively priced in the New England market.
“We’re putting together mockups of the systems we’re designing and there became a need to find more shops other than the local shops we rely on for small builds and quick turnaround items,” he said.
His first posting of 25 parts netted about 17 interested suppliers, he said. Rockhold is alerted via e-mail each time a new supplier posts a bid at the ManufacturingQuote.com Web site. He then logs on to the site, checks out the bid, and does a little background research on the supplier. He might investigate the supplier’s Web site or check business sources to find out if the supplier is capable of tilling the order. He then contacts potential suppliers via e-mail or telephone to speak with them further.
Rockhold has also created a spreadsheet to track the responses. A spreadsheet allows him to visually compare the suppliers’ offers. “Some quotes are low, some are high, and some are in the middle. You can tell, when comparing them, who had a good understanding of the job and had a good quote,” he said.
He added that the ability to send and view design files in the PDF format simplifies the bid process.
“It’s really nice because it allows the engineer to immediately snap a design to PDF and send it to the Web site so suppliers can see what they’re bidding on,” he said. “When you have a change in the design, you can immediately change it on the Web site, and if you’re already dealing with vendors, you can tell them there’s been a change and to go look at the Web site to see it.
“A lot of these shops can’t print big drawings, but everyone can print PDF,” he said.
Leon Wellwood owns a custom machine shop, Datum Machine Works, in Rockford, 111. The rush to connect customer with supplier via the Internet has not passed him by. Wellwood, who has been using Manufactur-ingQuote.com since its inception in February, has saved significant money on travel and other labor costs by making use of business-to-business Web services, he said.
As a supplier, Wellwood pays a yearly fee of $1,995 to use the site. Those looking for parts manufacturers pay no fee, Free said.
“I’m not using it exclusively. I have existing customers. I’m using it to enhance sales,” Wellwood said. “But it’s becoming a major portion of my sales, at least 25 percent. And I see that growing in the future.”
Because Wellwood operates as a one-man sales force, the Web allows him to save the time and cost he formerly spent traveling between potential vendors to get engineering specifications and tout his company. Wellwood didn’t have to buy any special software or upgrade his computers to use the business-to-business site. In fact, he still uses a traditional telephone modem.
“I tell people it can be done,” he said. “I work right off the phone line so it’s possible to do. It just takes a little longer.”
However, he is currently having a cable modem installed so he can be online all the time without tying up the phone line. The cost is about $100 a month.
“But businesses smaller than mine won’t need that anyway,” he said. He did estimate that most small suppliers would need about a three-week learning curve to become fully proficient in responding to online RFQs.
Sometimes Wellwood will bid on an RFQ based on the accompanying PDF. When the vendor accepts his offer, that company sends him a complete CAD design. Usually this is done to protect proprietary information, he said. Wellwood has also been asked to sign nondisclosure agreements via the ManufacturingQuote.com Web site before his bid is accepted, which he has done willingly.
As evidence of the trend toward moving the vendor and supplier relationship from fax machine to Internet, big three automakers—DaimlerChrysler, Ford, and General Motors—banded together in February to create a Web-based marketplace called Covisint, where suppliers bid for the automakers’ parts contracts. Renault and Nissan signed on later and the site was unveiled in October.
Combined, the five companies spend $300 billion annually on supplies and materials.
Early in October, ArvinMeritor of Troy, Mich., a maker of suspension components and exhaust systems, conducted the first online auction at the site. The manufacturer held an online auction to choose a supplier for an injection-molded plastic part used by ArvinMeritor for sunroof and door modules. ArvinMeritor won’t say how much it saved by using the auction process, but executives have said that suppliers should save 10 to 25 percent of costs through the online marketplace.
The manufacturer’s top executives have also said they expect that use of the online auto marketplace will allow parts makers to save 10 to 25 percent on supplier costs as well as improve efficiency. About 40 companies used the site within its first month of operation.
However, automakers won’t be able to use Covisint’s online auctions for larger parts and systems such as Arv-inMeritor’s exhaust systems because there are only two or three suppliers at that level, the executives said.
Moving to a New Interchange
The automakers chose to work together after GM and Ford announced on the same day in November 1999 that they planned to launch their own proprietary business-to-business exchanges to host supplier auctions, said Tom Hill, a Covisint spokesman. The auto companies felt that their supply community had moved beyond the old-fashioned fax/phone/e-mail interchange, and would warmly greet a move to Web-based bidding, he said.
“But the suppliers felt the pinch in terms of technology requirements,” Hill said. “They felt they might have to adapt to three different technology requirements. So they told the automakers, ‘We’ll have to spend all this money and integrate our communications systems just to talk to you guys.’ ” This led to the agreement among DaimlerChrysler, Ford, and GM to jointly develop the Covisint exchange. Renault and Nissan came on board in April. It remains to be seen how well the automakers will work together on their shared business exchange.
With the system, one of the automakers will be able to post data for a part it wants made for a car, Hill said. Instead of sending that information to suppliers in different languages their computer systems can understand, Covisint will allow automakers to release the information all at once in one common language, improving speed and quality. But whether suppliers’ systems are up and running in that common language is another story.
It’s not yet clear how many smaller suppliers have technology in-house to communicate with the system.
“The future is difficult to call,” Hill said. “How quickly this happens depends on how quickly the customers want to become engaged and how quickly they want to get their own house in order in terms of integration with Covisint and how quickly Covisint can manage customers.”
Without technology-equipped suppliers willing to use the service, Covisint could experience a dearth of business.
ArvinMeritor executives have said that their company still provides its suppliers mainly with drawings and gets price quotes offline until the supplier community makes the technological and psychological shift to online bidding and quoting.
But it seems that a shift is already beginning, especially for small suppliers like Wellwood, which find that the minimal or nonexistent startup costs and the savings in labor and travel costs more than compensate for annual fees, the learning curve, and the potential but minimal technology upgrade.