E-Procurement and E-Commerce at General Motors - Case Study Example

E-Procurement and E-Commerce at General Motors Executive Summary General Motors has several characteristics that enhance its fit for e-business, in this case e-procurement and e-commerce, providing a workable example of how both e-commerce and e-procurement have reshaped manufacturing in the United States, particularly due to being part of an immense supply chain. This paper discusses the use of e-procurement and e-commerce at General Motors, particularly with regards to management practices of its chain of supply. The paper then moves on to the opportunities in e-procurement and e-commerce that are being leveraged by GM in creating additional value for their customers. The benefits and limitations of GM’s use of e-procurement and e-commerce are also discussed with regards to their support to the overall business operations at GM. Finally, the report also offers suggested improvements and recommendations for both functions of e-business at GM, which will help to differentiate it from its major competitors. Case Description As one of the companies that truly represent the United States automobile sector, General Motors has several characteristics that enhance its fit for e-business, in this case e-procurement and e-commerce. It also provides a workable example of how both e-commerce and e-procurement have reshaped manufacturing in the United States. To begin with, the firm is a crucial part of a large chain of supply. GM’s role in this supply chain and the scope of this supply chain is reflected in their annual $60 billion expenses in procurement, which makes the savings in cost related to e-procurement significant (Khosrow-Pour, 2012: p34). In addition, the company’s ability to adopt e-commerce and e-procurement at major links of its chain of supply has increased sales volume by up to $350-$550 billion annually. Undoubtedly, this will generate further value creation and cost savings that are associated with the company’s sales, and purchasing across the entire chain of supply. Finally, General Motors, possibly due to its familiarity with electronic data interchange and its benefits, as well as the dominant position they occupy in the chain of supply, is recognized as one of the pioneering adopters of e-business (Khosrow-Pour, 2012: p34). Utilization of E-Procurement and E-Commerce at General Motors E-Procurement E-procurement implementation has raised expectations at General Motors, including the reduction of time and procurement systems implementation and development cost at the company’s partner’s facilities, and increased flow and sharing of information in the chain of supply (Khosrow-Pour, 2012: p36). In addition, it has also enabled substantial reduction in costs per item and ordering costs of purchased goods, while also enabling improved planning and forecasting for General Motors and its partners. Moreover, it has also optimized the company’s supply chain and ensured better customer service, shorter cycles of product development, and its build-to-order capabilities. Finally, it has also enabled a favorable environment for joint research and development, such as in product design. A web-based system of procurement, from a technological point of view, destroys many supply chain barriers of entry related to existing technological barriers. The company’s supply chain is composed of over a thousand suppliers, which means that transforming their purchasing function to an internet-based one with competitive bidding processes driven by software will substantially reduce ordering costs and costs of goods (Khosrow-Pour, 2012: p36). Moreover, the suppliers will also have the ability to cut costs as they can source supplies and communicate in a business-to-business marketplace. E-Procurement has also enabled GM to improve information flow and extensively share information across the chain of supply, which has resulted in significant planning and forecasting quality improvements for General Motors, as well as its suppliers. With time, their need to buffer inventory at various levels of their supply chain has diminished with a concurrent increase in inventory turns (Huff et al, 2011: p61). The traditional chain of supply, in other words, with all levels having buffer inventories, has sped up GM’s progress towards a lean chain of supply. E-procurement’s internet-based nature ensures that there is increased customization of products, while also developing the company’s build-to-order capabilities. In fact, GM already predicts that they, in the future, can deliver cars that are customized to the consumer in less than 15 days following reception from customers. Additionally, GM’s capabilities due to e-procurement to exchange rich information via their electronic data interchange platform has created advantageous conditions for the various divisions at the company, as well as their suppliers, to collaborate in product planning and design as part of R&D (Huff et al, 2011: p61). General Motors alliance with DaimlerChrysler and Ford in their e-procurement systems initiatives has led to increased benefits in economies of scale. Most industry analysts and suppliers have noted that the benefit most attached to this is the ability to work within one system that has common protocols, as compared to using multiple purchasing networks in the same sector (Huff et al, 2011: p62). General Motors and its business-to-business partners have been testing e-procurement’s benefits. For instance, in a brief period of time in the mid-2000s when TradeExchange was expanded to include other car manufacturers, General Motors was able to purchase over $4 million of supplies contained in the catalogues of suppliers who had enrolled in the expanded network. The company also sold seven presses at a price of $1.8 million in late 2007 through an online auction (Huff et al, 2011: p62). In addition, GM was also able to buy over $2 million worth of materials at yet another auction. Prior to taking part in the joint initiative, Ford was also involved in this type of auctioning. Auctions involving mainstream but undisclosed parts have led to double-digit savings on their deal, which was worth $78 million. E-Commerce E-commerce’s rapid advent has led to dramatic changes in General Motors and the automotive industry’s business environment. Because of these technologies’ unique, innovative, and dynamic structure, General Motors has found more opportunities to benefit from the advances in these technologies (Khosrow-Pour, 2012: p42). By using these technologies of e-commerce, GM has the ability to reach potential customers and suppliers across the globe. General Motors, with its headquarters in the American City of Detroit, has more than two hundred thousand employees in most major regions of the globe, while it also does business in over one hundred and twenty countries. As a result, they have adopted e-commerce technologies through the implementation of supply chain integration and business-to-business models. E-commerce based business-to-business models have enabled GM to achieve daily operations’ efficiency, which can be evidenced by their improved ability to conduct sales (Khosrow-Pour, 2012: p42). This has enabled GM to cut paper-based systems, while also reducing the use of staff in the mailroom. Additionally, business-to-business concepts have aided GM to reduce potential errors that employees make to improve the accuracy of their sales data. Without the electronic data interchange system, GM would face possible losses, particularly since the system is able to transfer and define standard data without need for human intervention. Through adoption of e-commerce and a supply chain integration model, General Motors and the automobile industry have been able to efficiently manage information, as well as to create smooth information flow to suppliers, distributors, customers, and their internal divisions (Khosrow-Pour, 2012: p43). General Motors today uses Customer Relations Management and Enterprise Resource Planning systems as a way to manage their supply chain processes. With Enterprise Resource Planning at GM is a broad set of activities that aid the business in managing some crucial parts and functions of their operations. Results from ERP can help the managers at GM to evaluate how the company is performing with regards to sales, as well as to compare its sales with the company’s corporate objectives. Customer Relations Management as a model used at GM aids the company to easily reach customers and receive their feedback. Because CRM integrates the information of the customer to the overall company, the efficiency of supply chain management is improved substantially (Khosrow-Pour, 2012: p43). E-commerce platforms at GM are commonly used to sell materials online to distributors and the end-user. The company uses e-commerce to divide their suppliers into different levels on the basis of car components. This enables them to reduce inventory levels and save transaction costs. Opportunities for Creating Additional Customer Value E-Procurement Describing how e-procurement has evolved to take advantage of opportunities at GM is difficult, particularly because it has been more of a revolution, rather than a step-by-step and steady development. Probably due to their lack of experience in e-procurement as a relatively new system, the e-procurement division at GM has often been seen to grow beyond the plans for its development prior to their implementation (Jäger, 2013: p44). The idea of e-procurement at General Motors became a major pursuit in the early 2000s when they came up with TradeExchange together with their technology partners Commerce One, as well as i2 Technologies. I2 Technologies collaborated with general Motors to provide services for supply chain management, as well as business process expertise. They also agreed to provide its Rhythm Suite components to General Motors and its suppliers. On the other hand, Commerce One, which is an e-commerce software vendor, led the company’s TradeExchange project that enabled GM and its affiliates like Suzuki and Isuzu to take advantage of the significant benefits of e-procurement. A new opportunity that has arisen with the use of e-procurement to improve customer value is the creation of a single web-based procurement network, which has allowed and will continue to enhance GM’s industry-wide dominance in the supply chain to benefit, control, and lead further advances in technology via one trading community (Jäger, 2013: p45). The advent and advance of digital connectivity, the internet, and subsequent e-business models in the automobile industry has enabled GM to rethink its bureaucratic and hierarchical organizational model. Customers are faced each day with new innovative models made possible by ICT applications and tools, which has become an opportunity for GM to shift from hierarchy to participation and teamwork, as well as to be customer focused, and to be mission-oriented (Jäger, 2013: p45). GM has taken advantage of the opportunities that e-business and ICT models offer to fit with the demands of the customer and to streamline internal processes. Recent advances in ICT have introduced the era of network intelligence that has re-invented GM, allowing them to replace their previous paradigm of functional rationality, internal productive efficiency, hierarchical control, and departmentalization. Instead, they have moved towards a competitive and knowledge based economy that requires innovative entrepreneurship, horizontal/vertical integration, network organization, flexibility, and a customer-driven procurement strategy (Jäger, 2013: p45). This paradigm shift has thrust GM towards e-procurement, emphasizing on customer services, external collaboration, and coordinated network building. E-Commerce E-commerce at GM has allowed the company to trade on the basis of standardization with other automobile manufacturers like DaimlerChrysler and Ford, taking advantage of the system created by Covisint. Covisint was set up by automobile manufacturers in North America to allow the companies sell their products on one networked site, which GM has taken advantage of by integrating the system with its CRM strategy in providing its customers with a range of applications (Gobetto, 2014: p51). While the integrated system under Covisint begun on the basis of transaction fees and/or subscriptions from the marketplace, GM is now looking to generate revenues using extended applications services. Some of these extended applications include portal solutions, quality control, supply chain management, and collaboration, all of which create value for the customer. So as to stay ahead of the competition, GM is also increasing its budget investments for its business-to-business infrastructure, which is set to enable it to achieve quality and efficiency in its daily management practices (Gobetto, 2014: p51). In addition, this investment will also help GM in increasing the variety of their business interactions. As GM continues to expand internationally, they may face difficulties in competing against local car manufacturers, especially in the Asian region. By using e-commerce and a business-to-business model, their entry point has been much easier as they are able to outsource at little cost, thus passing on minimal costs to the customer (Gobetto, 2014: p52). In addition, because the bargaining power of suppliers is decreasing with time due to the use of –e-procurement strategies by GM in collaboration with other automobile makers, GM has the ability to make demands and requirements of its suppliers. By further using an e-commerce strategy, they are able to pass on the reduced costs and better quality from suppliers to the customer. Finally, due to the economic crisis of 20008/2009, competition in the industry has lowered as companies merged or went under. Because the industry is now controlled by a small group of corporations, competition, rather than being based on price, emphasizes on value added services, which is passed on to the customer (Gobetto, 2014: p52). Strengths and Weaknesses of E-Procurement and E-Commerce at GM E-procurement The most evident advantage of using e-procurement at GM is cutting of costs for purchased products, including the holding costs, ordering costs, and cost of purchased services and goods. In addition, e-procurement provides opportunities that were recently unthinkable for the efficient integration in the chain of supply. Integrating e-procurement into the supply chain has enabled GM to implement lean manufacturing technologies, lowering inventory and, therefore, reducing the costs of inventory (Jäger, 2013: p46). Finally, implementation of e-procurement at GM has resulted in shorter cycles of product development, especially by integrating sharing of information across the chain of supply, significant project management improvement and team collaboration in the chain of supply, and shorter order cycles. However, it has also proved to have limitations, particularly in the gap between buyer and supplier expectations about the impact of e-procurement on their operations. Suppliers, for example, have been reluctant to adopt e-procurement because of training costs, having to deal with two or more marketplaces, and risk of compromising data (Jäger, 2013: p46). In addition, there is an increase in the number of standards governing e-procurement, creating confusion and impacting on purchasing cost, thus undermining the cost saving strategy at GM. E-Commerce E-commerce portends several benefits to General Motors, including enabling it to capture a large market segment that appreciates responsiveness and has a high willingness to make payments. This means that GM has the ability to charge higher prices and increase their turnover. In addition, it also decreases unsold inventory since GM is able to match demand and supply (Gobetto, 2014: p55). By implementing an e-commerce platform, GM can provide only the products that are wanted by the customer. However, e-commerce platforms also have disadvantages for GM. By being responsive as a result of using e-commerce, GM also has to deal with having to meet high service levels, handling and providing a wider array of products, and having to meet shorter lead times. This has required GM to build more facilities, increase the flows of transportation, increase their stocks, use more outsourcing, buy expensive software for information management, and increase prices (Gobetto, 2014: p55). These additional activities have increased costs for GM, and they led to a decline in efficiency. Recommendations The ease of use and equivalent functionality level of procurement’s direct materials is not available universally but is expected to explode in the short term. Together with other automobile makers, GM should lobby governments across the world to enact laws that ensure that e-procurement processes are insulated through governing digital signatures, transactional documentation in relation to e-marketplaces, and recognition of e-agreements (Jäger, 2013: p49). This will enhance confidence in the process, which, in turn, will enhance value creation. In addition, they should also develop e-suites with other car manufacturers across the world to standardize information that will be available to different suppliers. This will ensure that GM will have the ability to select suppliers in a process that is more predictable, controllable, effective, and efficient. Finally, they should seek out more secure, interoperable, consistent, and simplified systems of technology to drive their e-procurement functions. Together with other manufacturers, they should seek to develop standard and uniform techno-platforms in relation to quotation templates and transactional systems (Jäger, 2013: p49). With regards to their e-commerce platform, GM should think of shifting to a cloud-based system, which will enable it to cut the additional costs discussed under disadvantages of e-commerce implementation at GM. In addition, social networking tools are becoming more available in helping to improve cooperation and alliances amongst trading partners, which GM could also adopt into its e-commerce platform (Gobetto, 2014: p57). With technological advances, structures of communication will become more enhanced security-wise, which should enable GM to securely share confidential information. Moreover, organizational emphasis on the bottom line structure should encourage GM to outsource its e-commerce activities to India and China, reducing costs. At GM, the future of e-commerce and business-to-business will rest on their ability to connect their already existing Enterprise Resource Planning system with their nascent online marketplace (Gobetto, 2014: p57). By using their ERP platform and e-commerce together, they will reduced incurred costs and improve inventory management. References Gobetto, M. (2014). Operations management in automotive industries: From industrial strategies to production resources management, through the industrialization process. Dordrecht: Springer Huff, S. L., Schneberger, S., & Wade, M. (2011). Cases in electronic commerce. Boston: McGraw-Hill Publishing Company. Jäger, A.L. (2013). Global Purchasing Processes in the Business Sector Automotive Aftermarket: Development of a Reference Model. Dordrecht: Springer. Khosrow-Pour, M. (2012). Cases on electronic commerce technologies and applications. Hershey, PA: Idea Group Pub. Read More