If You Build It, They Will Come

The big three automakers’ new supply chain initiative is a victory for XML standards

Extensible markup language (XML) has hit a grand slam in the automaker supply chain.

In February, the big three major automakers — Ford, General Motors (GM), and DaimlerChrysler —announced the formation of an unprecedented alliance to migrate their vast network of suppliers to an open-architecture e-business exchange. The agreement calls for GM and Ford to merge their previously announced efforts to build business-to-business (B2B) exchanges: TradeXchange and AutoXchange, respectively.

This alliance will likely represent the next step up the evolutionary ladder for improved use of information in the supply-chain network, and it’s built on XML. If successful, this project will lead to the largest, fastest exchange for transacting business — e-commerce or otherwise — ever built.

Each of the automakers manages a network of approximately 30,000 suppliers, collectively accounting for nearly $300 billion worth of business each year.

Last year, GM launched TradeXchange in collaboration with B2B portal company CommerceOne Inc. TradeXchange is best described as an Internet-based parts and components procurement system. Similarly, Ford set up an e-business system called AutoXchange in collaboration with Oracle to leverage the productivity of its $83 billion purchasing budget and suppliers. Oracle and Commerce One will continue to participate in the combined venture, and Cisco Systems Inc. will bundle networking products in a “quick-start” kit for the suppliers involved, enabling immediate, secure access for transacting business. (SAP is reportedly in conversations with DaimlerChrysler about serving as that company’s strategic technology vendor.)

The exchange will serve as a separate company and be open to other automakers; it may even eventually expand to include other industries. GM had already discussed deals with Honda and Toyota to use TradeXchange, and it’s reasonable to expect that Honda and Toyota, as well as other automakers, will eventually participate in the new alliance. For example, GM’s Japanese partners — Isuzu Motor Co., Subaru, and Suzuki Motor Corp. — as well as Ford’s Japanese affiliate, Mazda Motor Corp. — are expected to join. France’s Renault SA and its Japanese partner, Nissan Motor Co. Ltd., may also participate.

This unprecedented cooperation by major representatives of the Industrial Age is a significant signpost on the path to e-business worldwide. Before the announcement, the question of whether GM and Ford would share their respective and XML formats was unsettled; standardization efforts are ongoing in other industries, but the automaker effort is the most dramatic to date.

By choosing to cooperate rather than compete, the companies have demonstrated the potential power of a common XML “vocabulary” across a single supply chain. Their example may provide a beacon to other industries to build their own e-business vocabularies, rather than tolerating splintered efforts. Second, the immensity of the effort will turn up the pressure on related industries — as well as on enterprise software vendors — to support the auto-industry XML vocabulary as a global standard. We’ll see an interesting turn of affairs: Members of the “old guard” may well pose a threat to the new guard.

With a goal of cutting spending on parts procurement by 10 percent when aggregated across all industries, the Net-based XML model has the potential of saving trillions of dollars in productivity gains. The implementation of a standardized Web-based B2B exchange for the supply chain would be one of the most dramatic goals for the retail market worldwide. A B2B e-commerce convergence of industry verticals around a common XML vocabulary would substantiate a trend toward improved procurement efficiencies and costs.

Any company or industry can benefit by following the example of the automakers. In March Sears, Roebuck & Co. and Carrefour SA announced their intention to establish a retail e-commerce venture (with Oracle as the principal technology partner) called GlobalNetXchange, representing $80 billion in supply-chain business. Wal-Mart, the world’s largest retailer, has no plans to join, and will continue to use its proprietary supply-chain system. However, Sears, the second largest retailer in the U.S., and Carrefour, the second largest retailer in the world, both plan to encourage other retailers to join the exchange. Perhaps as GlobalNetXchange gains more credibility and grows in number of members, Wal-Mart will also considering join the team.

In other examples, J.P. Morgan and PriceWaterhouseCoopers have launched a markup language initiative for the financial-services industry, and a steel markup language is under development by WebMethods Inc., Computer Sciences Corp., and E-Steel Corp. Furthermore, the aerospace industry is planning to launch MyAircraft.com, a Web site for supply and inventory management.

The corporate support for XML is unprecedented. Major companies such as IBM, Microsoft, Sun Microsystems, and Adobe have already been developing XML applications as part of their product suites. The largest distributed infrastructure in the world — the Web — is already in place. XML may soon proliferate across the Web into corporations, industries, and even into homes — appliance makers such as Maytag and Sunbeam are already developing Internet-ready, XML-proficient smart refrigerators, toasters, and televisions. With XML as the global standard for information tags, the world is about to become a very connected place. — Hank Simon

Hank Simon (hank.simon@lmco.com) is a science and technology writer with more than 25 years of advanced IT experience.

Continued in News and Analysis Part II >>>

• Privacy
• Your California Privacy Rights
• Copyright © 2008 United Business Media LLC