From a part identification point of view there are many technologies on the market that have been deployed to help identify parts moving from one location to another.  Bar code labels, RFID tags and hologram labels have all been deployed to help identify shipments in transit, or to locate stock within a manufacturers warehouse or compound.  Each identification technology has its advantages and disadvantages, Bar Code labels can for example be easily duplicated and at the same time they damage easily.  RFID technology is more robust but requires a complex network of RFID readers / receivers to be able to track a shipment.  RFID tags will typically be applied to a shipping container rather than to the individual parts that may make up a number of pallets within the container.  This is mainly down to cost more than anything else, it is cheaper to put a barcode sticker on a small pump unit rather than try and stick an RFID tag on to it.  But what about if you could actually apply some form of identification to a part, that was relatively indestructible, cheap to apply, was virtually invisible to the naked eye and had already been successfully tested by a number of industry bodies who are jointly interested in counteracting the movement of spare parts around the world?

A relatively new part identification process that could help to minimise the movement of counterfeit parts is provided by a company called Orbid Solutions.  Their 2DMI (2 Dimensional Marker Identification) is a patented marker solution that secures, verifies and identifies products for markets that face counterfeit and product tracking problems. The Orbid 2DMI marker is less than a mm in size and contains an array of lines with varying angles and widths and the code contains up to 15 characters of information. The bar code type pattern is laser etched on to parts and in most cases this type of marking is difficult to see with the naked eye.  The image below shows a 2DMI mark laser etched to a small screw head, this mark is about 400microms wide and the image to the right illustrates how each mark differs simply by varying the angle of the lines within the square box.

It uses a software application that enables 2D encryption of products to provide a unique identification for both overt and covert purposes on any type of surface.  The 2DMI marks can be printed so small that they are undetectable to the human eye and they are relatively damage resistant, up to 80% of the mark can be damaged and yet the mark would still be readable. The mark can be read by everyday technology, eg barcode imagers, industrial line and field cameras etc.  The solution is also compatible with all major enterprise database systems, (Oracle, IBM, Microsoft and SAP).   

The matrix below provides a comparison of Orbid’s 2DMI  part marking system and some of the more established labelling type solutions that are out on the market today.

So the automotive industry has a potential part identification solution that could be applied to gearbox castings, engine components, in fact any type of component that is counterfeited today.  The solution has been tested by various industry associations such as the North American Automotive Industry Action Group, each part is securely encrypted and the part can only be identified by way software installed at the destination where the parts are being sent to.  Yet for some reason there has been no widespread adoption of this solution amongst automotive companies.  What about if you could somehow integrate this part identification solution with a company’s B2B trading platform?  What if you could use this marking solution as the basis of not only checking for counterfeit parts but also for monitoring the transportation of parts from its point of manufacture to its point of delivery.  With bar code reading technology already deployed in many ports and customs offices worldwide it is possible to keep track of part movements across any trade lane around the world. 

The key to integrating this solution to a B2B platform is the software used to encrypt the 2DMI marker code, this is already integrated to leading enterprise software systems meaning that the code could be extracted from the enterprise system and could be monitored via a B2B platform such as GXS Trading Grid.  GXS, via its existing Logistics Visibility, and soon to be launched Service Parts Visibility Solution has the global infrastructure to be able to electronically track and trace parts shipments around the world.   My next blog on this subject area will look in more detail at how our new Service Parts Visibility Solution can help address the counterfeit goods market, not just in automotive, but other industry sectors as well. 

In the meantime, it is that time of year when I need to take a holiday !!, so I will be back in a few weeks time to discuss this subject from a B2B solution perspective.  Until then, a couple of questions for you to think about, how much business is your company losing due to the trade in counterfeit parts and what are you doing to try and minimise this loss?

Yesterday, as part of my bi-weekly review of what is going on in the automotive industry worldwide, I found an interesting report over on Automotive News which highlighted how some of the car manufacturers had been affected by the Olympic Games.  The Chinese government had imposed a number of measures to try and reduce air pollution in the City during the Olympics, this included banning all large trucks from driving in or around the suburbs of Beijing. In addition they wanted to try and halve the number of cars on the roads by implementing an odd and even system depending on what number ended on the number plate of every car.   

Drastic measures you would think, especially when many of the automotive OEMs have parts and raw materials shipped in by lorry every day.  These measures were put in place on 1st July and won’t be lifted until the end of the Paralympics on 17th September.  So how do you think the car manufacturers in Detroit would have been affected by such draconian measures to control traffic? 

Beijing Hyundai Motor Co is the largest car manufacturer in Beijing and due to problems sourcing parts and distributing finished cars they had to cut their operations from two shifts a day to only one shift.  In response to reduced operations of Beijing Hyundai, its suppliers have either halted or cut production of their local plants located in the Beijing suburbs.  Visteon for example suspended production of its auto interiors plant in surburban Beijing from August 4 to August 7. On the first day of the Olympics, 8th August, the company also suspended the operation of its auto conditioner plant, both of these plants supply Beijing Hyundai Motor Co. 

In order to get around the problem of shipping their cars by road, Beijing Hyundai recently started to ship cars to dealers across the country by train.  In addition, due to the expected reduction in shifts, they ramped up production before April to make up for the anticipated output declines during the Olympics.  I have to say it does make you wonder how much automotive related inventory is lying around the suppliers based in Beijing at this moment in time. 

I think the one memory that will stick with me about these games was the amount of smog / pollution that surrounded the infamous ‘birds nest’ stadium in Beijing.  More importantly though  the pollution will still be in Beijing long after the games have left the city.  I wonder if hosting the games in Beijing has now made the Chinese government more aware of how much work they still have to do to clean up the air around their great cities?  

Many companies around the world are implementing green supply chain initiatives at the moment, in fact many company are insisting that their suppliers share details on their carbon footprint and what actions they are taking to reduce it.  But how do these green supply chain initiatives embrace the suppliers in China when quite publicly, via TV coverage at the Olympics, it has been demonstrated that China has one of the most polluted skylines in the world.  It always amazes me to think that many manufacturing companies are now starting to embrace green initiatives, but when it comes down to sourcing from low cost countries such as China, financial profit rather than size of their supplier’s carbon footprint, (I guess) will always reign supreme from a sourcing decision point of view.

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…..

During the last decade there has been a huge shift in the manufacturing footprint of the global automotive industry with regions such as China, Eastern Europe and Russia enticing the global automotive companies and their respective supply chains to establish a presence in their respective regions.  However over the past couple of years India has been positioning itself for further growth by encouraging automotive OEMs to establish new manufacturing plants in the region.  Manufacturers have rushed in to take advantage of the low cost and relatively highly skilled workforce and manufacture cars for both the domestic market and for export, well thats what they expected to do. The map below shows the current OEM landscape across India with four major regions being established.

However as the graph shows below, the adoption of four wheel vehicles is still relatively low and most of the population prefers two wheeled bikes etc.

This preference for two wheel rather than four wheel vehicles is for a number of reasons namely:-

· Most of the population doesn’t actually need a car

· They are uncertain about the cost of running  a car

· The road infrastructure is not good enough

· The roads are heavily congested with two and three wheeled bikes

· Parking space is not sufficient

· They do not know how to drive

· They are unsure whether some manufacturers will last as long as the vehicle thus creating a ‘trust’ gap 

So what about manufacturing cars for export, well there are a number of factors which, for the moment will limit the export of cars from India:-

· The geographical position of India, effectively being land locked to the North of the country by the Himalayan mountain range makes exports by road, (the most popular method of moving freight in India at the moment) relatively difficult

· Many of the country’s coastal ports are unable to handle vehicle exports due to infrastructure issues

· The quality of the road infrastructure is relatively poor meaning that supply networks, especially via road freight are not as efficient as those in other western countries

· As with China there is the western ‘perception’ that Indian made vehicles may not be as high quality as western made cars

Now many of these issues are currently being addressed, the Indian government is financing improvements to the country’s road and port infrastructure and many joint venture manufacturing projects have been announced partnering western manufacturers with domestic car manufacturers in India.  In addition, it was announced by TATA in June that they had taken over Jaguar and Land Rover and so immediately the quality perception issues surrounding some India car manufacturers such as TATA have been addressed as they will now be able to learn from Jaguar and Land Rover about how to improve the quality, safety and design of their own vehicles.  Indeed at the same time as announcing the acquisition of Jaguar and Land Rover, TATA announced their own new vehicle, called the Nano, which they reckon will sell for $2500, and they also announced an engine project that runs on air.  So within the space of two months TATA in particular has made a strong impact on the global automotive industry, quite timely given the current economic climate in regions such as North America. 

For the moment at least the one area where India will excel at is the provision of components and spare parts for the automotive sector.  Manufacturing castings for gearboxes and engines can be a lengthy and labour intensive process and the Indian companies are highly skilled in this area.  The graph below highlights the proportion of car parts being manufactured in India at the moment.

But many western automotive companies are use to their Tier1 suppliers manufacturing complete sub-systems for their vehicles rather than individual piece parts.  So the supply chain in India will have to be improved and take onboard the best practices employed by the likes of Bosch and Valeo in order to provide the correct parts and sub-system supply infrastructure that many western car manufacturers have become use to.  India has been able to entice a number of car manufacturers to setup their global parts distribution centres in India, Volvo and Renault are the latest to establish such logistics hubs in the region. 

So what about B2B infrastructures?, well EDIFACT is the preferred electronic document standard that has been adopted by many companies in India and this at least allows them to exchange EDI related information outside of the country.  But as with China five or so years ago, many of the smaller Indian companies have limited access to IT technology or indeed infrastructure. As with the improvements to the road and port infrastructures the telecommunications infrastructure will have to be significantly improved to get many of the Indian parts suppliers ‘e-enabled’ before they can become true players in the global automotive manufacturing market.  The Indian port authorities, given their requirement to link with global logistics providers are probably the most advanced users of EDI at the moment.  I will be taking a closer look at the current EDI and B2B adoption levels in India over the next week or so and will post my findings in my next blog entry

So what happens when a plant is closed down for a short period of time, what happens to the hundreds of suppliers that may be based around these plants supplying parts on a 24 by 7 basis.  More importantly from a B2B or IT infrastructure point of view how do you manage your IT infrastructure so that you can effectively turn a key and close down a plant’s IT infrastructure and restart again as smoothly as possible?  The upgrade to GM’s IT infrastructure has been a significant undertaking including the standardisation of software and processes at every plant, updating networks and creating four command centres in the U.S, Latin America and Europe, each designed to let experts look into any GM factory around the world and help get idled production lines back up and running much faster. In the past, an economic downturn would mean that OEMs would probably look to sell off plants, but advances in IT and production related technology and processes means that it is far easier to just idle a plant for a few weeks.

Over the past few years GM has been slowly overhauling its entire global IT infrastructure to provide a much more simpler, flexible and fully integrated IT platform to link all of its 160 manufacturing plants together.  In parallel to this, GM has been adopting the infamous ‘Just in Time’ (JIT) principal of supplying parts to its plants, a supply process invented by the Japanese automotive industry and one which has helped to make Toyota the market force that it is today.  GM’s new IT infrastructure includes 25,000 plant floor Windows XP based PCs, 11,000 printers, 3,500 servers and 14,000 network switches.  Ironically, just as GM complete the updates to their IT infrastructure, so Microsoft put out a press release saying that they will no longer be providing copies of Windows XP to PC manufacturers after 30^th June this year. This is Microsoft’s attempt to begin phasing out Windows XP.

No doubt GM will have signed a significant support contract with Microsoft to guarantee upgrades to its new Windows XP platform, which is interesting given that Microsoft is trying extremely hard to get businesses to adopt its Vista based operating system.

The new IT infrastructure has allowed GM to experiment with a number of new technologies, many of which have been implemented to help improve the visibility of parts and other materials around their global plants.  For example using a system from a company called  Wherenet that allows RFID based tracking of parts within its plants.  GM are now able to locate parts in warehouses and storage areas much more quickly, allowing their fork lift drivers to get parts to assembly lines much more quickly.  A similar Wherenet RFID based system was also implemented at Land Rover to allow them to track the position of any vehicle within its Solihull plant in the UK.

GM’s parts inventory has also been reduced considerably due to the JIT supply of parts and materials trackside.  This has been achieved through the implementation of a new in-plant order management system  which links suppliers directly to a production line.  This new system allows GM to keep assembly lines running just four hours before new shipments are required. To meet these aggressive deadlines many suppliers have setup plants on supplier parks next to GM plants around the world.  To run a lean production operation like this means that GM will be putting an extra emphasis on improving visibility across their supply chain and monitoring the performance of key suppliers and logistics carriers. 

Stock outages, as proven by the recent UAW strikes, can have serious impacts on GM’s production capacity and in a similar manner an unreliable IT infrastructure can also impact production capacity.  GM estimate that since implementing their global IT infrastructure, production outages due to IT related issues has dropped from 50% in 2005 to less than 5% so far this year. 

The most interesting piece of information that I picked from the InformationWeek article was that GM’s four global command centres, used for monitoring all 160 of its production plants around the world, are managed by a piece of software that is on nearly every Windows PC today, Microsoft Excel.  Sure, this is probably heavily customise with Macros developed my Microsoft’s Skunkworks Team but it just goes to show that with all the technology that is available today, Excel still has a significant hold on many manufacturing companies.   

From a GXS perspective,  we are continuing to see a growing trend for companies looking to improve their B2B infrastructures, provide support for new B2B technologies and provide better visibility into the shipment of spare parts from one location to another.  Of course we cannot forget the all important integration to the one software application that helps to keep the manufacturing industry ticking over on a daily basis, Microsoft Excel

Last year GXS worked with a Japanese company to implement an aftermarket parts visibility solution to help them manage their spare parts shipments to their dealer network around the world.  This implementation, based on GXS’ Logistics Visibility solution was implemented to allow them to trace the shipment of spare parts as they made their way between their factory in Japan and, in the initial part of the project, to their dealer network in North America.  As with many automotive dealers, this company has their own dealer management system and GXS’ Logistics Visibility solution was fully integrated to their web based platform to provide a single, seamless environment for improving the distribution of spare parts across their dealer network.  The diagram below could almost apply to any automotive OEM looking to improve their aftermarket B2B infrastructure.

In addition to improving the visibility of PO transactions, this implementation also allowed this company to monitor the efficiency of their third party logistics providers.  GXS, through the Logistics Visibility solution, is linked to nearly 80% of the global freight carriers, in addition GXS has direct links with many government cross border and customs facilities around the world.  The most significant benefit obtained and one which every company strives to improve, is customer satisfaction.  They are now able to respond more quickly to dealer requests for spare parts and at the same time, they are able to realise better cost control by optimising their usage of carriers. 

The research analyst AMR recently defined this aftermarket supply chain activity as Service Lifecycle Management and it is an area that many companies, especially in the automotive and high tech sectors are looking to improve.  Provision of spare parts is a big business in itself and it was estimated last year that GM made more profit on $9billion of aftermarket related spares sales than they did on $150billion of OEM car sales. The service parts business becomes more important for products or projects that are expected to stay in service for a long period of time.

For example in the UK the Defence Logistics Organisation is solely responsible for the distribution of spare parts to the British Army, Royal Navy and Royal Airforce. The DLO provides a crucial service, making sure that spare parts get shipped anywhere in the world, anytime of day and they have to provide this spare parts replemishment service for the  entire life of the jet fighter, tank or warship, which could be anything up to 30 years. 

Increased globalisation of the automotive industry is putting more pressure on the car manufacturers to improve their aftermarket supply networks and I will be taking a closer look at this sector over the coming weeks to see how GXS can help more companies, such as the Japanese  manufacturer highlighted above, to improve their aftermarket / service part area of their business.

In recent months there has been a significant move in the mindset of the leading car manufacturers to embrace new hybrid and electric vehicle technologies.  This has mainly been driven by environmental pressure to reduce green house gas emissions and consumer demand for cheaper to run cars due to the high cost of fuel.  Some of the car manufacturers have decided that they can shift existing car stock by simply offering incentives, one that appeared a few weeks ago was from Chrysler who offered potential customers a new fuel card which effectively fixed the price of their fuel at $2.99 for three years, if the price went above this level which it inevitably will, then Chrysler would pick up the bill.  Naturally this is a knee jerk reaction to one of Chrysler’s more popular brands, Jeep, who saw a 50% drop in some of their vehicle sales in the first quarter of the year.  However what Chrysler seem to forget from a consumer perspective is that this might be helping to shift stock but the consumer will have to absorb the heavy depreciation costs, servicing costs and the negative image that is starting to emerge from running fuel thirsty SUVs.

Over the past few weeks there have been numerous press releases from car companies starting up new joint venture projects with high tech industry companies with a view of developing long life Lithium Ion batteries for use in cars.  Nissan have announced a new partnership with NEC, VW are now working with Sanyo and Toyota have decided to build three new factories in Japan, solely to manufacture Lithium Ion batteries for their next generation hybrid vehicles.  For the High Tech industry sector this increased interest in long life battery technology has proven to be an ‘unexpected’ revenue earner for them and this is a very good example of how two different industry sectors are working more closely together to provide consumers with more fuel efficient, greener cars. 

Electric powered vehicles have been around for many years now,  Ford produced the Think! Electric vehicle in 1999, shown above, and GM developed the EV1 at around the same time.  Both cars suffered the same problem, they weren’t blessed in the looks department !, and their batteries were not able to hold their charge for very long.  In fact GM’s EV1 was so expensive to produce that they ended up leasing their vehicles to consumers as they were prohibitively expensive to buy.  As a result of poor lease sales, GM pulled the plug on their electric vehicle projects and this was probably one of their biggest mistakes in recent years, and as shown by the pic below, their electric vehicle project ended up in the scrap yard. GM are so keen to secure market share in the electric vehicle market that they are determined to bring their new VOLT vehicle to market as soon as possible and they are working with a number of leading high tech business partners to make this happen, no matter what the cost to develop.

One of the leading electric vehicle manufacturers at the moment is TESLA, who build an electric car based on the Lotus Elise.  The car is rumoured to run on 8000 Lithium Ion mobile phone sized batteries, provides similar acceleration to a normal petrol driven car and retains a charge for around 200 miles of driving.  In addition, for an electric car, the TESLA is actually very desirable to own as can be seen below.

The XPRIZE corporation recently setup a competition to see who could develop the world’s first 100MPG car and already 60 teams, including leading car manufacturers, have entered the competition to win the $10Million prize fund.  The aim of the prize is to force industries to look for ways to solve complex problems and turn concept ideas into production reality.  In case you think this is a crazy idea, Richard Branson and his Virgin Galactic company won the last XPRIZE competition for developing a sub-orbital space rocket which is hoped will kick start the space tourism industry.

Which got me thinking, if companies are incentivised to develop fuel efficient and green vehicles by entering a global competition, what would happen if these companies were incentivised, some how, to develop greener supply chains.  What if there was some sort of global competition where companies could implement any form of B2B technology or services and at the same time prove demonstrable returns, either through improved supplier performance or improved exchange of information across a global trading platform.  Perhaps offering prizes to the company that can ramp up the most suppliers in the shortest amount of time, reducing the most number of paper based transactions in one year or which company can achieve the highest percentage of visibility of transactions across their supply chain. 

So I wonder how many companies would be interested in entering the  ‘Global B2B Challenge’ or perhaps more appropriately the ‘B2B Olympics’

Now this particular country’s communications infrastructure is not as unreliable as those in some emerging markets such as India, as depicted in the image below, but the telecommunications infrastructure in the country highlighted in the programme is very outdated and leading experts estimated that it would cost £15Billion to provide a new fibre optic based communications network in this country.

This particular country does tend to suffer from one or two significant storms each year and internet users in remote locations have to hold their breath to see if their internet connection is still live after the storms have passed.  The main telecommunications provider for this country claims to have 98% coverage of the country. However the actual speed of the connection varies considerably and in many cases companies are having to relocate to major towns or cities in order to improve the speed of their internet connection and more importantly the speed of how these companies can respond to customer orders or queries. 

So where is this country I hear you ask, well it is the UK!

According to a recent article in Business Week, Northern European countries have one of the highest broadband penetrations in the World. For example, Denmark, Finland, Sweden and the Netherlands all saw broadband penetration rates over 30% at the end of 2007.  The UK, Belgium, Luxembourg and France are hot on the heels of the top four and these have penetration rates above those of the U.S or Japan.  The global Boradband penetration is shown below with leading broadband adoption countries shown in dark green.

According to a recent press release from Forrester, they estimate that the top four North European countries today will see penetration levels increase to 85% by 2013. In the UK, the broadband market is dominated by BT and due to the EU imposing new regulations on the telco providers, they are having to open up their networks to other companies wishing to provide Broadband connections.  There are two key factors limiting the speed of the UK broadband network, firstly the copper wires used for the point to point connection and secondly the distance from the telephone exchange.  At the moment you can only get a reliable broadband connection in the UK if you are within a 5 mile radius of a telephone exchange. 

Now in the rural parts of the UK many smaller businesses are starting to suffer due to the fact that their businesses are more than five miles from a telephone exchange.  This is a major concern to smaller UK businesses in rural areas who can see the benefits of being able to conduct business across the internet but they are limited to using the much slower dial up connections.  In a broadband speed experiment conducted on the TV programme, it took nearly 40 minutes to download a video from the BBC website, this business was just over 5 miles from his nearest telephone exchange.  Meanwhile a colleague of his who was about 1 mile from the exchange was able to sit in her garden and wirelessly review the video in real time.  So a simple example, but for other companies or indeed the growing home working community in the UK, the infrastructure needs to be significantly improved. 

Now the mobile network operators have spotted a gap in the market and they can now provide USB based wireless modem connections however again the mobile phone coverage across the UK, especially in rural areas is not very fast.  However for other people these USB based broadband connections will change the way in which people work, provider greater freedom and less reliance on having a fixed line broadband connection.

Another example given on the programme was of a computer animation company who were working on a new series for Disney.  In order to get a better quality of life the owners of the company decided to relocate their design studios to Truro in the South West of the UK.  They have now found that their business is being hindered by the slow internet connections available in this part of the UK.  They are currently having to send completed episodes of their animations on DVD to another office in London,  by courier, so that they can then be uploaded to a server and then sent across the pond to Disney Studios. 

So the adoption of eCommerce amongst smaller companies is in part being hindered by poor or unreliable internet connection speeds here in the UK and the only way this can be improved is by continued investment in the communications infrastructure.  BT are currently investing millions in the development of their new 21C communications infrastructure , lets hope they do not forget the thousands of smaller businesses located in rural parts of the UK and their desire to be connected to what will become one of the world’s leading IT infrastructures when it is completed.

Now if you are a relatively small company, comprising of perhaps a couple of manufacturing plants or a chain of ten retail stores, how do you remain competitive in this tough economic climate and how do you survive any impending recession that may be knocking on your door?. You can just imagine that there are board rooms all over the world full of executives trying to work out their strategies for riding the recession rollercoaster, looking for ways to reduce costs, restructure their businesses and at the same time try and remain competitive in order to make that all important and often elusive operational profit.

Normally when recessions come knocking on the door,  the larger global companies will delay implementing large scale IT projects, they will look to reduce costs by outsourcing key business processes and make their creaking IT infrastructures last until the economy picks up again.  But who knows when this will happen and in the meantime how are the smaller companies suppose to restructure their own IT infrastructures in order to reduce costs and keep their businesses above water.  Again, outsourcing is an efficient way to reduce IT related costs and streamline supply chain strategies, however outsourcing, especially from a B2B perspective, has traditionally been the preserve of the much larger companies. 

Until now that is, GXS has recently introduced a Managed Services offering called MX which allows companies of any size to outsource their B2B infrastructures.  But what are the business drivers for the smaller companies wanting to outsource their B2B infrastructures. Well, let us take a quick look at some of the more important business drivers and areas of a business where B2B outsourcing can help the smaller company.

Company Restructuring – each industry sector is experiencing company divestitures, merger & acquisition activities or more general company restructuring.  Often through a potential acquisition for example there will be a period of consolidation, rationalisation of departmental infrastructures.  In a similar way, IT and B2B infrastructures will have to be reviewed to see if cost savings can be made by for example having a common infrastructure or outsource B2B services to a single trusted vendor rather than having to deal with several vendors.  B2B outsourcing offers a means of managing your B2B trading platform during a period of change.

ERP Projects – many companies today, no matter what their size, will have a wealth of information locked away in back office systems such as ERP and CRM solutions.  As described by my colleague Steve Keifer in a couple of recent ERP related posts, ERP information will normally stay within the confines of an enterprise and yet a company is expected to work seamlessly with perhaps hundreds of different trading partners who may find this ERP information helpful, if only they could get access to it.  B2B outsourcing offers a way of unlocking ERP information and allows the relevant pieces of information to flow uninterrupted up and down the supply chain.  Many companies will not have the internal resources to undertake this kind of integration project, B2B outsourcing, especially through GXS Managed Services MX allows seamless ERP to B2B supply chain integration to take place.

Manual Process Improvement – in today’s ‘green’ culture, removing waste, especially paper from a supply chain is one of the key goals of B2B automation.  Implementing an e-Invoicing solution for example helps alleviate the need to send paper copies of invoices across a supply chain, which ultimately helps companies to get paid much more quickly.  Hosted web based form environments allow your suppliers, no matter what their technical capability, to complete order forms etc in a very short time, reducing the need to re-key in form related data and ensure that all transactions can be accurately traced across all trading partners.

Improve Global Connectivity – many automotive companies for example are being asked to support their customers in new emerging markets where a multitude of different communication standards or document formats could be in use.  GXS Managed Services MX is built on GXS Trading Grid, so companies will have access to a B2B platform that can connect to any trading partner around the world, no matter where they may be located. GXS has operations in over 18 countries around the world.  As a result, GXS can support your supply chain operations in Asia Pacific, Europe, North and South America.

Trading Partner On-boarding – B2B outsourcing can help to improve the way in which you work with new trading partners and it can help reduce the time it takes to get new partners up to speed with new B2B technology and integrated within a company’s B2B infrastructure.  For new customers projects, adopting an outsourced B2B strategy will allow your trading partners to engage in projects much more quickly, this improving the efficiency of your supply chain.

Legacy System Upgrade – B2B Outsourcing also allows a company to upgrade legacy and outdated IT infrastructures with a state of the art B2B platform. The outsourced environment shields users from learning about how to manage new connectivity options or document translation standards. GXS provides the ideal opportunity to employ new Software as a Service (SaaS) or Service Oriented Architecture (SOA) based B2B environments. These are easy to deploy  to trading partners as there is minimal implementation required and a company can be rest assured that every trading partner is using an identical ‘version’ of the B2B platform.

If you feel that your company, irrespective of size, could benefit from outsourcing your B2B environment then please feel free to visit our website for further information, click here to visit the GXS Managed Services MX specific page.  In further blogs we will take a more in depth look at how some other recession related business issues could be addressed through the adoption of leading edge B2B services & technology.

The surprise of the last three months is Ford, they have somehow turned around their business to produce a $100 million profit last quarter.  Considering all the problems that Ford were experiencing just last year, this is dramatic turnaround for their business and has now set them on a path of continued growth and new business expansion.  However Ford are still likely to make an overall loss in 2008 and probably won’t reach true profitability until 2010 when new car models start to hit the market. This profit has not come about simply by selling off Jaguar and Land Rover, that deal won’t go through until next month so what have Ford done?, how have they seemingly achieved the impossible in what is a very tough economic climate? Put simply, Ford have been following an aggressive cost cutting exercise, developing global car platforms, rationalising key suppliers, establishing manufacturing plants in low cost regions around the world and most importantly starting to develop consumer ‘friendly’ cars once again.  Ford sales were boosted by a strong performance in Europe with a pre-tax profit of $739 million, up from $219 million a year ago, the results in Europe helped to counteract the relatively poor performance in North America. 

Turning to GM, they revealed a significant $3.25 billion loss in the first quarter compared to a relatively small $45 million loss during the same period last year. Slow U.S vehicle sales, high fuel prices and a continued housing slump prompted GM to revise their sales projections.  In addition GM is being affected by continued financial troubles at two of their former companies GMAC Financial Services who needed $1.45 billion and Delphi who needed $731 million to help with restructuring charges.  GM are continuing to provide financial support to both of these companies as part of ongoing restructuring efforts. (I will discuss Delphi a bit later). GM also revealed that they lost nearly $800 million due to UAW’s strike action at one of their key suppliers American Axle and Manufacturing Holdings Inc.  GM had to cease production at some of their plants due to the strike action at American Axle.  One of a few positives that came out of this quarter was that there was a sharp decline in GM’s inventories which dropped about 100,000 units because of the American Axle strike, with most of this drop being in full-sized SUVs and trucks.  Even though this was a significant inventory reduction for GM, they still carry too much inventory, ending the quarter with nearly 840,000 units on its books.  Part of this problem has been caused by the tough economic conditions in North America, particularly the higher fuel prices that has made the SUV and truck market a difficult one to compete in.  GM will have to address their product strategy in North America to meet the growing demand from consumers for more fuel efficient cars and continued investments in hybrid and electric vehicles will play an important part in GM’s future product strategy. 

Over at Chrysler, their sales dropped 23.5% for April and down 17.6% for the year to date, the company blaming the decline on the industry’s slow truck and SUV sales and its own decision to reduce sales to rental fleets which for many companies has traditionally helped to significantly boost sales figures.  Some of Chrysler’s key models such as the Jeep Commander, Cherokee and Dodge Ram pickups saw sales drops of 49%, 31% and 23% respectively. To try and counteract these losses Chrysler LLC are undertaking a complete platform review, taking significant costs out of their business and looking for key partners that they can jointly develop new vehicles with. 

Overall, including the other car manufacturers around the world, global car sales fell by 8.6% in the first four months of this year. 

From a supplier perspective the performance of some of the industry’s key suppliers was equally uninspiring.  In a similar situation to Ford, many of the Tier 1 suppliers saw a drop in North American sales but they reached profitability due to stronger sales performances in Europe.   Delphi for example was due to exit Chapter 11 in early April, until a $2.5 billion restructuring package provided by Appaloosa Management LP was pulled at the last minute.  This meant that Delphi have had to rewrite its financing package once again and seek support from former owner GM.  As mentioned before, the situation at Delphi partly contributed to the profitability of GM for the last quarter.  So it will be a while longer before Delphi exit Chapter 11 bankruptcy protection and they will have to continue taking costs out of their business to help boost profitability and improve opportunities for growth.  Since Delphi was spun out of GM in 1999, GM has seen their Delphi related charges grow to $8.3 billion. 

Visteon, formerly part of Ford, also saw a Q1 loss of $105 million on revenue of $2.86 billion, these figures were as a result of plant closures and lower production levels by North American based automakers.  Visteon still generates a third of its sales from Ford but has made significant steps to expand into new markets such as China which has helped reduce their overall losses.  Despite the market conditions Visteon expects to either make a loss of $25 million or a profit of $25 million in 2008. 

American Axle, a key supplier to GM and following recent strike action managed to seriously affect production at a number of GM’s North American plants.  American Axle is currently in an 8 week strike however they confidently told their own suppliers to be ready to begin production shortly.  Now it is OK for American Axle to say that their suppliers should be prepared to start production, but how does a supplier fund such production if they are not sure when the parts will be shipped and hence payment received?, at the other end of the supply chain how much inventory should GM hold to avoid any potential out of stock situations and hence avoid production stoppages?  Managing inventory in today’s economy is on a knife edge, get it wrong and it will have a serious financial impact on the customer, get it right and it will bring improved supply chain performance, reduced costs and hopefully increased sales.  The strike at American Axle centres around different plants receiving different benefits packages, their workers want to see a single and consistent package applied across the whole business.  American Axle have invested in new low cost, high quality manufacturing plants in China, India and Poland so hopefully, once the strike action is resolved, they will be able to continue along a path of continued growth. 

Finally let’s take a look at a shining light in the automotive supplier community.  Borg Warner saw their quarterly profit jump by 52%, again partly due to improved sales in Europe and Asia.  Borg Warner are seeing an increased demand for their product technologies especially those which help improve fuel economy, lower emissions and provide better vehicle performance.  Given the industry’s demand for better fuel economy and lower emissions, Borg Warner is in an excellent position to see significant growth in their business in the next few years.  In fact any company producing fuel cells, batteries, electronic control systems and electric motors stands to benefit from these new market demands. 

So, interesting times for many automotive companies, the general themes emerging from many of the first quarter company results is that of decreased sales in North America, increased sales in Europe, reducing costs by establishing new plants in low cost regions around the world and improving supply chain efficiencies.  I will take a closer look at the performance of European and ASPAC based automotive companies in future blog posts.

Until then have a good weekend