Over the past few weeks I have been undertaking some research into the aftermarket parts market and it was interesting to uncover how counterfeit parts have infiltrated many automotive supply chains around the world. 

The global market for counterfeit parts has grown exponentially over the past five years and is now worth around $16bn a year worldwide, of which $3bn worth of counterfeit parts are traded in North America alone.  The worldwide hub for counterfeit part production is China, followed by a number of other emerging markets such as India.  Today’s counterfeiting operations are very complex and many counterfeit parts manufactured in China have been made by companies with excellent reverse engineering skills.  ie they can take a product such as an alternator, strip it down, measure each component part and then produce drawings from these measurements to manufacture the counterfeit parts.  An example of a counterfeit alternator is shown below, the fake part is shown on the left, but on first glance it is very difficult to tell them apart.

As you would expect, many of these parts are very inferior to the original parts and in many cases they are potentially dangerous if fitted to a car.  For example there was a story of brake pads being made from compressed grass cuttings which when put under pressure against brake discs led to the brake pads catching fire, so these pads were about as much use as a chocolate fire guard.  Manufacturing parts is one thing, manufacturing cars cloned on western designs is another. It shows the level that some Chinese automotive companies will go to in order to develop a car as quickly as possible , for example taking styling cues from successful western car designs. 

The image below shows a Chinese ‘version’ of BMW’s successful X5 SUV.  The car on the right is manufactured by Shuanghuan and needless to say BMW were very quick to prevent the car from being imported into their key markets around the world.  The Chinese government does not condone the manufacture of these counterfeit cars and parts, they see it as a way to develop the economy and ‘acquire’ the know how to compete against western companies.

With the increase in car ownership in emerging markets and a relatively uneducated car buyer in many of these regions, ie how to maintain a car properly and how to ensure their cars are fitted with genuine parts, the trade in counterfeit parts is going to continue to grow.  The counterfeit operations are highly organised, with many criminal gangs helping to fund the manufacture of these parts in China.  In fact a 2006 report by Interpol said that many organised crime and terrorist groups are shifting in dealing in weapons and drugs which have profit margins of around 200% into counterfeiting as the margins are as high as 900%.  

When the parts are manufactured they are simply put into a shipping container, a bill of loading is provided for the parts, this bill of loading is then sold to a third party and the container is re-directed to a waypoint, frequently a free trade zone.  One such free trade zone is Dubai and over the past few years this has become a key hub in the global counterfeiting operations.  Dubai has one of the world’s largest container ports, processing nearly 11m containers each year and Dubai customs will only search between 3-5% of all containers entering its port. 

When the containers reach this so called ‘free trade zone’ the parts are unloaded, re-packaged and then all the associated shipping documentation is created before everything is placed back into the container and sent on to its final destination.  So inefficient paper documentation checks, limited visibility of the shipment of the containers across Ocean container routes and limited efforts by the original parts manufacturers to try and minimise the trade in counterfeit parts have all contributed to fuelling the growth in the counterfeit goods trade. From Dubai’s point of view, the increased trade in counterfeit goods has contributed to the growth of the region, as depicted by the picture of Dubai port below with the bustling skyline in the distance.

Now with the Olympics looming on the horizon the trade or rather flow of counterfeit goods out of China could be affected however I would bet that the organisations running this trade will have come up with a way to minimise disruption to their very lucrative and profitable operations.  When you think about it, it is amazing that these unofficial ‘parallel’ supply chains are in place serving the same dealerships and car repair centres as the official parts suppliers such as Bosch, Valeo and others.  The counterfeit parts supply chain is not as sophisticated as the orginal parts supply chain, there is more use of paper based documentation, parts are easily distributed to small back street repair shops who may not care so much about where the parts originated from. 

So the problem has been identified, the counterfeit parts trade is eating a $16bn hole in the profits of the original car and parts manufacturers worldwide on an annual basis which is ironic given the turmoil that exists in some automotive markets at the moment. Numerous research projects being led by leading industry associations such as the Automotive Industry Action Group and American Aftermarket Industry Association and others have identified the problems in shipping counterfeit goods around the world and yet relatively little progress has been made to try and dampen down the trade in counterfeit goods.  So why is this?, especially when some technologies, both part identification and B2B solution based, are available on the market. How are other industries getting around this problem, indeed will we be ever able to remove this problem entirely? 

So what can be done to counter the trade in counterfeit parts and more importantly how can B2B solutions help to address some of these issues? How could improved visibility into the movement of aftermarket parts, better use of secure electronic documentation and better ways of labelling parts help to reduce the movement of counterfeit parts around the world?  

Well that will be the topic of my next blog entry…..

Over the past couple of years there has been a significant convergence between the automotive and high tech industry sectors.  Satellite navigation systems, entertainment systems, mobile phone and iPod integration, today’s consumer is partly helping to drive the convergence of the automotive and high tech industry sectors.  So I thought it was about time I found out a bit more about the high tech sector, particularly in Europe.

Last week I attended a meeting hosted by CompTIA, the Computing and Technology Industry Association, in Brussels. CompTIA have been around for 25 years now and along with EIDX in North America and EDIFICE in Europe, they provide an invaluable service to companies looking to implement or manage B2B infrastructures in the high tech industry sector.  This particular meeting was hosted by Ingram Micro and it had good representation from companies such as Computacenter, Toshiba and Dell to name but a few.   

The main theme of this event was to discuss why companies were struggling to implement B2B technologies and what could be done to overcome these adoption barriers.  There were a number of presentations during the course of the day and many drew the same conclusions as to why companies were struggling to adopt B2B technology.  One of the main barriers was a lack of awareness of the benefits and technology that are employed within a B2B environment.  In terms of awareness, one of the interesting ideas to come out of the sessions was to establish some form of certification process for employees of companies that were thinking of implementing a B2B environment.  In many other industry sectors, employees are provided with training in using specific systems or are put through recognised accreditation to specific industry bodies.  A suggestion was put forward that perhaps CompTIA could pull together a B2B accreditation programme to ensure that employees of companies know about the latest B2B technologies and best practices and would therefore be able to identify areas of a business where B2B technologies could be implemented. 

I had an interesting conversation with a researcher from the Henri Tudor Institute based in Luxembourg.   They had developed a software tool that allowed a company to map out, visually, all message transactions between trading partners and then actually run a visual simulation to see what would happen as the transactions flowed around the ‘virtual’ company. Such a tool could help sell, or make a company more aware of, the benefits of B2B before they have implemented any B2B technologies. This tool could easily be adapted to help a company evaluate the ROI that could potentially be expected by replacing old manual processes, such as invoicing, with an electronic B2B solution. 

There was also a presentation from SEPA, the Single Euro Payments Area, an initiative to try and standardise the e-Invoicing process across Europe.  Not an easy task when you think that each country in Europe has a different tax law and each government has a different approach to improving B2B adoption in their respective countries.  For example e-Invoicing adoption levels in the Nordic countries, ie Norway, Sweden and Finland is far higher than any other country in Europe. This is mainly due to government pressure for companies to remove paper from their invoicing process and making local tax rules and regulations easier to navigate through from an e-Invoicing point of view.  

ComputaCenter also provided an interesting insight into the challenges they faced when dealing with software companies who had complex or inaccurate product data in their price lists.  Computacenter suggested inviting software companies to their next meeting to see if there was a way that they could work together to simplify the exchange of information between hardware and software technology companies.  For example if Computacenter could receive just 15 pieces of information or attributes to describe a software product, rather than the 100s of variants they receive at the moment, then it would improve their B2B process no end.  Product Data Quality is becoming increasingly more important within the high tech sector and this example from Computacenter highlighted the trend very well. 

The day was concluded with a discussion panel, this was originally made up of myself representing GXS, OB10, Apple and Inovis.  As Apple and Inovis did not turn up to the event at all, Ingram Micro and GE EDF took part in the discussion panel instead.  Again, the theme of the discussion was to find ways to increase B2B adoption levels and each of us went into our thoughts as to how this could be improved.  B2B Outsourcing was seen as a key way for companies to remove the barriers to B2B adoption and not having to worry about how to manage a B2B infrastructure. They could just get on with their day to day activities and leave the management of their B2B infrastructure to a vendor such as GXS. GXS provide B2B outsourcing services to companies of all sizes, no matter where they may be based in the world.   

So this was an interesting meeting to attend, especially when trying to appreciate the B2B challenges that some of these technology companies faced and how similar they were to challenges faced by companies in the automotive industry.

Now just in case you think I have turned into some sort of ‘tree-hugger’ since I last posted, I found some interesting articles this week on how companies are trying to run environmentally friendly B2B infrastructures.  We all know that the politicians are working hard to persuade the automotive industry to develop environmentally friendly cars in order to try and reduce green house gases etc.  We also know that EDI helps to reduce paper based transactions,  again cutting down on the number of trees being used!, but how many people know that one of the topics getting on the agenda of today’s CIO is how green the IT environments are of the vendors supplying their companies? 

The following article from silicon.com, Virtualisation Powers Up Energy Group, reviews how E.ON, one of the world’s largest gas and electricity suppliers, is using a Virtualised B2B infrastructure across their global business. This has resulted in them using 56% less power than their previous B2B environment due to the unique way in which the B2B infrastructure is able to call on extra processing power as and when it is required.  In addition, by consolidating their numerous IT infrastructures across multiple divisions into one environment, they have seen a 50% reduction in their operating costs.

Just in case you thought that it was just the energy companies that are keen to show a green side to their business, as I mentioned earlier many CIOs are taking this seriously now as well.  Again over on silicon.com, I found this article, CIOs Dump Environmentally Unfriendly Suppliers,  which discusses how today’s CIO are taking green issues seriously even when deciding which IT suppliers to work with.  So it is interesting to think that many CIOs in the past were focused on how much cost savings or business improvement could be realised by working with a particular IT vendor, but now they have to demonstrate how green their solutions are as well! One of the companies mentioned in this article is LDV (Leyland DAF Vans), a leading UK manufacturer of commercial vehicles, they said that every supplier they work with, either for production or non-production purposes is assessed for environmental performance.

This is an area which I had never really considered before, from a B2B infrastructure perspective, and LDV seem to be leading the way in terms of defining a strategy for using green suppliers for their IT and B2B environment.  LDV are a relatively small company but can you imagine what would happen if one of the top three North American automotive OEMs started to implement a global ‘green’ strategy for their IT environments around the world.  I am sure some are already starting to think about or are already implementing green IT sourcing strategies, but there doesn’t seem to be much information out there on exactly what these companies are doing. 

GXS has recently upgraded their data centres around the world, our new high availability B2B infrastructure called Trading Grid® Ultra is based on a virtualised environment running on Blade servers from eGenera.  This provides us with a highly flexible environment where we can use as much or as little processing power as our customers require.  In addition the new data centre infrastructure takes up less floor space than the old one and hence requires less lighting and power in the room!, OK the reduction in lighting may be a minor detail but it all helps to reduce power consumption in our data centres.  The entire Ultra infrastructure uses new state of the art servers, storage devices and network routers. As a result, our customers’ B2B transactions are flowing across one of the most efficient data centre infrastructures available today.  In addition, our Outsourced B2B or Managed Services customers can be rest assured that they are using B2B solutions hosted within the same environmentally friendly B2B infrastructure. 

So I have to pose the question to anyone reading this blog, how green is your B2B environment and what steps are you taking to make it more efficient?

OK, time for me to drive off into the sunset, may be I should think about buying one of these VW camper vans, often associated with environmentally friendly communities. This one however has had it’s petrol engine replaced by an all electric drive powertrain system!

Global standards, regional standards, communication standards, document standards, the list is endless, no wonder the automotive companies are finding it difficult to develop their global B2B infrastructures.  Today’s IT managers face a daunting challenge when told by their management teams to integrate an overseas operation into their B2B infrastructure. 

This all started many years ago with the introduction of the American ANSI and UN EDIFACT standards.  The regional industry associations then emerged and wanted standards developed for their respective regions.  Today, EDIFACT is one of the main document standards used across the global automotive industry and OFTP is one of the most popular communication protocols in use.  OFTP, developed by ODETTE, has been in use since the late 80s and in recent years has come under increasing pressure from internet based communication standards.  There are still inherent security issues with transferring sensitive design and engineering data across the internet and to try and plug the security holes, ODETTE have been working on OFTP version 2.  OFTP v2 offers an interesting alternative for companies wishing to exploit the web for data communication.  A combination of encrypted messages and digital signatures ensures near complete security of transmitted messages across the internet.  With the increased security features, there are a number of OEMs who are testing OFTP v2, but given the past security related issues of trading across the internet, it may take some time for the automotive industry to gain trust in using this new standard. 

The manufacturing industry is unique as it is not just purchasing and logistics related EDI transactions that take place between trading partners, many of these companies need to share engineering and design related information amongst their trading partners as well.  The main problem with design related information is that it is very large in terms of file size, you are talking about a requirement to transfer giga-bytes of information across a network.  Combined with this, you have the added problem of each region having a different standard for transferring engineering data between an OEM and its design teams.   In Europe for example, ENGDAT is regarded as the standard for transferring Computer Aided Design (CAD) models via EDI.  In the U.S and in Japan there are other home grown standards for transferring CAD models.  Given that car manufacturing is a global business, you would think that car companies would be rushing to agree on a global standard for engineering related data exchange.  It is only in the last few months that AIAG, ODETTE, JAMA and STAR have finally agreed on a global standard called the Joint Automotive Data Model (JADM).  This is an attempt to try and synchronise global XML standards, automotive business processes and associated data entities.  If JADM is successfully developed and deployed then it stands to totally change the way in which automotive companies share engineering information around the world.  More importantly it will be one less B2B integration problem to have to worry about, well for the moment at least!