E-Business And Supply Chain Management InThe Automotive Industry: Preliminary Findings

From The Eastern Cape And Kwazulu-NatalBenchmarking Club Pilot Surveys

Research Report No. 35

Sagren Moodley

Industrial Restructuring ProjectSchool of Development Studies (incorporating CSDS)

University of Natal

February 2001

ISBN No. 1-86840-424-2

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FOREWORD

The Industrial Restructuring Project (IRP) was initiated at the beginning of 1996as the KwaZulu-Natal Industrial Restructuring Project (KZN IRP). The projectinitially focused exclusively on KwaZulu-Natal, but is now aimed at supportingindustrial policy in South Africa at the national, provincial and local levels. It isfacilitated by international experts and is based at the School of DevelopmentStudies, University of Natal, Durban. The project has two important features.Firstly, it focuses on critical issues that are impacting on the competitiveness ofmanufacturing sectors that are under threat from increased internationalcompetition and the liberalisation of the South African trade regime. Secondly, itis action-oriented in design. The findings that have been generated have, forexample, been presented to numerous industry stakeholders, includinggovernment, business associations and trade unions. The project consequentlyhas the support of various regional and national stakeholders.

This particular report has arisen out of both new research and the cumulativeknowledge that has been generated from previous studies. These cover anumber of IRP reports, working papers, journal articles and conference papers.Some of the themes covered include South Africa’s manufacturingcompetitiveness, the automotive industry, the clothing and textiles sector,footwear, middle-management capacity, human resource development,institutional support for industrial restructuring, and business services formanufacturing competitiveness. Enquiries regarding IRP material should beaddressed to: The Librarian, Centre for Social and Development Studies,University of Natal, Durban, 4041. Tel: (031) 2601031; Fax: (031) 2602359;email: masmith@nu.ac.za.

Prof. Mike MorrisDirector: School of Development Studies

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ACKNOWLEDGEMENTS

The International Development Research Centre (IDRC) of Canada provided thefunding for this study. Their generous financial support is sincerely appreciatedand hereby acknowledged.

I wish to express my sincere appreciation to the members of the Eastern Capeand KwaZulu-Natal Benchmarking Clubs who took valuable time to complete thesurvey questionnaire, and who responded to my email, face-to-face, fax andtelephonic inquiries. I would also like to thank the aforementioned Clubs forallowing me to visit their factories.

I am grateful to my colleague, Justin Barnes, and to Professor Raphie Kaplinskyof the Institute of Development Studies, University of Sussex, for theirconstructive comments on an earlier draft. The remaining errors, omissions andweaknesses are mine alone.

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TABLE OF CONTENTS

Foreword 2Acknowledgements 3List of Figures 6List of Tables 7List of Text Boxes 9

PREAMBLE 10

1. Introduction 142. Key Trends In The Global Automotive Industry 18

2.1 The Move Towards Greater Collaboration2.2 Increased Use Of The Internet2.3 Internet-Based Trading Exchanges2.4 B2B E-Commerce

3. The KZN Benchmarking Club 274. The Eastern Cape Benchmarking Club 305. E-Business And The Automotive Supply Chain 33

5.1 What Is E-Business?5.2 The Importance Of Networks5.3 The Potential Advantages Of E-Business5.4 The Importance Of Supply Chain Integration5.5 Potential Impact Of The Internet On The Value Chain5.6 The South African Context

6. Summary Of Key Findings 567. Conclusions 618. Recommendations 679. Some Policy Implications For Government 7210. Future Research Agenda 76

11. Survey Findings 80

11.1 E-Business Strategy11.2 E-Business Goals11.3 IT Audit11.4 Purposes For Which Firms Use E-Business Tools11.5 Key E-Business Drivers11.6 E-Business Perceptions11.7 How Has The New IT Changed The Way In Which

Enterprises Transact Business?11.8 Use Of E-Business Technologies In Supply Chain

Integration11.9 Digital Exchange Networks11.10 Benefits Of E-Business Tools11.11 Barriers To The Adoption Of E-Business Tools

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11.12 The Impact Of E-Business Technologies On The Firm11.13 Projections Of E-Business Growth

REFERENCES 118

APPENDIX 1: E-BUSINESS QUESTIONNAIRE 122

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LIST OF FIGURES

FIGURE 2.1: A Stylised Version Of A Simple Automotive Supply ChainFIGURE 4.1: Average Number Of Employees (Component Manufacturers)FIGURE 4.2: Average Turnover (Component Manufacturers)FIGURE 5.1: Interrelated Factors Giving Rise To E-businessFIGURE 5.2: Number Of Days Of Total Inventory: Club Members Versus International

Counterparts (1995 To 1999)FIGURE 5.3: Raw Material Inventory Holding: Club Members Versus International

Counterparts (1995 To 1999)FIGURE 5.4: Work In Progress Levels: Club Members Versus International

Counterparts (1995 To 1999)FIGURE 5.5: Finished Goods Inventory Holding: Club Members Versus International

Counterparts (1995 To 1999)FIGURE 5.6: A Simple Physical Value ChainFIGURE 5.7: A Simple Internet-Enabled Value ChainFIGURE 5.8: An Integrated Value ChainFIGURE 5.9: A Virtual Value Chain

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LIST OF TABLES

TABLE 2.1: The Rise Of Global B2B E-Commerce (US$ billions)TABLE 11.1: E-Business Corporate StrategyTABLE 11.2: Mapping ITTABLE 11.3: For What Purposes Does Your Firm Use E-Business Tools?TABLE 11.4: Principal E-Business DriversTABLE 11.5: E-Business PerceptionsTABLE 11.6: E-Business-Enabled Supply Chain ManagementTABLE 11.7: Do Your Suppliers’ Have Access To Real-Time Information Of Your

Company’s Sales And Stock Levels?TABLE 11.8: Are Your Firm’s Internal Operations Electronically Integrated With That Of

Your Business Partners, Customers And Suppliers?TABLE 11.9: Does Your Company Have The E-Business Capacity To Access Your

Suppliers’ Production Capacity, Available Inventory, Lead Times AndDelivery Flexibility?

TABLE 11.10: Is The Information Provided Within Your Company’s Internal OperationsElectronically Linked?

TABLE 11.11: The Extent To Which Your Company’s Internal Operating Systems AreIntegrated With External Electronic Networks?

TABLE 11.12: Does Your Company Require Suppliers To Make Use Of E-BusinessTechnologies?

TABLE 11.13: Does Your Company Use E-Business Technology For B2B Trade?TABLE 11.14: Does Your Company Outsource Non-Core Functions?TABLE 11.15: When Awarding Contracts to Small/Micro Firms And Emerging Black

Contractors Does Your Company Consider The E-Business Capacity ofSuch Firms?

TABLE 11.16: Does Your Company Seek External Advice From IT Research AndAdvisory Firms?

TABLE 11.17: Does Your Company Have An In-House IT Department?TABLE 11.18: Are You Aware Of Any Joint Internet Initiative In The Automotive

Industry?TABLE 11.19: Is Your Company Linked To Any Internet Initiative For Supplier

Interactions?TABLE 11.20: Assessment Of The Potential Benefits Of An Internet-Based Integrated

Procurement SystemTABLE 11.21: What Are The Potential Disadvantages Of An Internet-Based Integrated

Procurement System?TABLE 11.22: The Importance Of Openness And Trust In Electronic Trading HubsTABLE 11.23: Advantages Of E-Business ToolsTABLE 11.24: E-Business ObstaclesTABLE 11.25: Effects Of E-Business Technologies On The FirmTABLE 11.26: Degree Of Overall Success In The Implementation Of E-Business

TechnologiesTABLE 11.27: Projections Of E-Business Growth In 2005 (% Of Purchasing Operations

Put On The Internet)TABLE 11.28: Projections Of E-Business Growth In 2005 (% Of Total Business Which

Will Be Web-Based)TABLE 11.29: Projections Of E-Business Growth In 2005 (% Of Supplies Purchased

Through Web-Based Auctions)

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TABLE 11.30: Projections Of E-Business Growth In 2005 (% Of Total Goods & ServicesProcured Through E-Business Technologies)

TABLE 11.31: Projections Of E-Business Growth In 2005 (% Reduction In PaperInvoices)

TABLE 11.32: Projections Of E-Business Growth in 2005 (% Of customers AndSuppliers That Will Have Access To My Company’s Real-Time Sales AndInventory Data)

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LIST OF TEXT BOXES

BOX 5.1 : Types Of E-BusinessBOX 5.2 : The Potential Advantages Of E-Business For The Automotive IndustryBOX 11.1: Corporate GoalsBOX 11.2: Glossary of IT TermsBOX 11.3: How Has The New IT Changed The Way In Which Your Firm Does

Business?

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PREAMBLE

This section of the report has a developmental focus, and should be read as aprelude to the main report, which looks at the issue of e-business and supplychain integration in two automotive Benchmarking Clubs, in an upper-middle-income developing country, viz. South Africa. Here, we contextualise the study ina highly stylised development frame of reference. This is crucial because thelinkages between development themes such as the prospects for knowledge-basedindustrial development; the diffusion of information and communication technologies(ICTs); the potentials and opportunities for spreading the gains of globalisation; andvalue chain analysis in the Third World have recently come under intense academicscrutiny in the inter-disciplinary field of development studies. Moreover, theinternational development agencies are also beginning to pay more carefulattention to these issues in their work. This spate of interest has been sparkedby the new Internet-based IT, which is believed to be an essential tool formanufacturing competitiveness; as it conditions power, knowledge and creativityin an increasingly networked economy.

IT change has been a hallmark of economic development, especially over thelast three decades. The rapid evolution of the Internet as a global informationand communication medium is an important aspect of that technical changeprocess. The US Department of Commerce’s (1999) policy document, TheEmerging Digital Economy II, highlights a strong positive correlation between ITand national prosperity. 1 Econometric studies also show a close statisticalrelationship between the diffusion of IT, productivity and competitiveness forindustries and firms (see Dosi et al. 1988; Jorgenson and Stiroh 1995; and Kwonand Stoneman 1995).2

The Internet is the most visible manifestation of the shift to a networkedeconomy, and has the potential to revolutionise the way in which companiesfunction and compete in both highly industrialised and developing countries. TheInternet is based on an open network system, and offers opportunities, in theory,for developing country manufacturing companies for catch-up and forging aheadtypes of development.3 According to Panagariya (2000: 969):

1 IT is responsible for about one third of real economic growth in the US over the past 5 years (USGovernment Working Group on Electronic Commerce 1999).2 The economic data, however, do not tell an unambiguous story about IT and productivity (seeBrynjolfsson and Yang 1996). A debate has been raging over the so-called “productivity paradox” whichasks how productivity growth could have slowed during the 1970s and 1980s at a time of “phenomenaltechnological improvements, price declines, and real growth in computers and related IT equipment”(Moulton 1999: 2). Moulton (1999) argues that the productivity paradox may be partially explained bymeasurement problems and poor data quality. But as more reliable datasets are released and newmethodologies are used, some researchers have found positive effects of IT on output and productivity inindustry- and firm-level studies (see Kwon and Stoneman 1995; and Jorgenson and Stiroh 1995). Theparadox may also be due partly to a lag in productive applications of the new IT.3 IT could serve as a unique opportunity for some developing countries to leapfrog whole stages ofindustrial development. Singapore is an excellent example of a developing country which has successfully

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Given the cost savings offered by Internet technology and relative ease with whichit can be provided, they [i.e. developing countries] can now skip several stages oftechnological development through which developed countries had to go. Stateddifferently, developing countries are much farther inside the current technologicalfrontier and, therefore, have larger potential benefits from moving to it.

The new imperative for Third World companies is to connect to global valuechains or face marginalisation, or in extreme cases even be excluded from themainstream of economic development. The policy challenge for developingcountry manufacturers is, therefore, how to leverage, consolidate and deepentheir links with the global economy; and how to take advantage of the potentialsof globalisation. In the era of trade liberalisation and global production systemsthat operate through ICT-dominated cross-border, inter-firm networks4, theconcordant effects of marginalisation and exclusion are likely to be a combinationof: deepening poverty; high unemployment; widening inequality; a weak andrapidly eroding export base; and low and even negative growth rates.

Incorporation of Third World companies into global-scale value chains is,therefore, of paramount importance to foster rapid economic developmentthrough access to leading-edge technology, business practices and markets.Inclusion in global value chains alone are, however, no guarantee of povertyreduction. For instance, adverse forms of inclusion may produce immiserisinggrowth and increases in poverty (see Kaplinsky 2000). This notwithstanding,industrial development options for less developed countries (LDCs) hingeincreasingly on leveraging ICTs as a means of promoting upgrading within globalvalue chains. In other words, theoretically, the right portfolio of ICTs have thepotential to enable developing country companies to become internationallycompetitive in more knowledge-intensive sectors, and simultaneously becomemore fully integrated into the global production system.

In most LDCs, production has taken place in relatively closed import-substitutingmarkets, often characterised by significant supply constraints. The shift towardsan Information Economy and a more open, globalised trading environment hasresulted in many companies experiencing great difficulties in meeting the needsof more demanding domestic customers, and particularly external markets. Thechallenge for developing country companies, therefore, is to harness ICTs foreconomic development, and to exploit the systemic and productivity-enhancingpossibilities inherent in the new ICTs. It may well be that knowledge-based ICTdevelopment could offer a new trajectory for Third World companies to:

• access advanced country markets;

• attain a deeper, visceral integration into global value chains; exploited the IT revolution through a comprehensive knowledge-led development policy, and hassubsequently leapfrogged entire stages of development.4 A central development concern is: Who is included and excluded in these networks?

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• upgrade within global, national and local value chains;

• create and extract value in the most efficient and effective manner;

• raise their international competitiveness; and

• maintain control of their competitive advantages.

In the highly industrialised countries, the new ICTs are transforming the waycompanies manage the supply chain. In the future, it is likely to pervade andshape all aspects of companies’ supply chain operations and strategies.Developing country companies will, therefore, need to make greater use ofintegrated, networked IT to streamline, integrate and synchronise key supplychain operations (such as procurement, order fulfilment, etc.) if they are to becompetitive in the New Economy. With a flexible and robust IT platform in place,companies in developing countries will be better placed to pursue new ICT-enabled, value-creating business opportunities in an increasingly networkedglobal business world. Only then will developing country companies be in aposition to harness information and knowledge located both inside and outsidethe company to improve supply chain performance. The challenge, then, formanufacturers in developing countries is to use ICTs to get closer to thecompanies’ employees, suppliers, customers and business partners. This is atough agenda.

At present, the geographic distribution of connections to the Internet and thediffusion of ICTs, heavily favours the highly industrialised countries (see Manselland Wehn 1998). Sometimes, real-time network infrastructure simply does notexist in the developing world, and access to Internet connectivity often remainslimited to simple store-and-forward email facilities. Many LDCs have low PCpenetration rates, and lack the telecommunications infrastructure necessary totake full advantage of the Internet.5 Apart from a poorly developedtelecommunications infrastructure, many LDCs lack the availability ofinexpensive telephone service and regular power supply. Internet access is alsoexpensive and unreliable. Further, access to Internet markets depend on theavailability of a substantial pool of skilled labour capable “of working on or nearthe frontier of computer technology” (Panagariya 2000: 970). Moreover, thebenefits of business-to-business (B2B) e-commerce depend largely on demandand supply factors in a particular LDC.

Continuing disconnectedness in the poorer LDCs is likely to leave their firms lesscompetitive in the networked global marketplace. We, however, are cautiouslyoptimistic that as telecommunication networks get rolled out and are improved indeveloping countries, and Internet possibilities become more familiar to

5 E-commerce can, under certain circumstances, grow quite rapidly even in an environment of lowtelephone line density, as the Indian experience of “enclave growth” in Bangalore illustrates.

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manufacturing companies, the potential for developing country6 companiesbecoming more connected to the global economic system is fairly high. But it willtake many years before the poorest LDCs in Africa, for example, are able tobenefit from the Internet. For upper-middle-income developing countries, likeSouth Africa, however, e-business presents important new opportunities toachieve a more level playing field vis-à-vis more advanced economies, as itdiminishes in-place advantages of space, cost, communication, information, andspeed. But first, developing countries will have to create and consolidateknowledge-based assets, and build a vibrant IT-based services sector tointegrate into the knowledge-based global economy. 7

Although the developing world is only at the initial stage of getting wired to theInternet, there is some evidence that use of the Internet and the associated IT isevolving rapidly in the Third World (Daly and Miller 1998; Mansell and Wehn1998). For example, corporate networks and the Internet, e-commerce,computerised systems for just-in-time (JIT) manufacturing, and robotics areincreasingly being used in the developing country business context (seeCassiolato 1996; Mansell et al. 1999; and Wu 1995). Daly and Miller (1998: ix),in their survey of a sample of 113 International Finance Corporation (IFC) clientsin developing countries, conclude that corporate Internet use “is extensive,considering deficiencies in telephone networks in many countries and the relativenewness of the technology”. But this sanguine view of corporate Internet use indeveloping countries is tempered by their evidence that “developing countrycompanies have not found wide operational need for the Internet in theiroperations, certainly lagging that in more industrialised countries” (Daly andMiller 1998: 12).

6 Especially the middle- and upper-middle-income developing countries. China, however, is an exception.There has been an explosive growth in Internet use over the last two years in China, which is projected toreach 30 million in 2003 (Bajpai and Radjou 1999: 23).7 See Bajpai and Radjou 1999 and Bajpai and Dokeniya 1999, who provide an insightful discussion of IT-led growth policies in the state of Tamil Nadu in India.

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1. Introduction

The automotive industry involves multiple players in long, complex, global supplychains. The relationships within and between automotive supply chains in thepast tended to be fixed, linear and clearly demarcated. Enormous potential,therefore, exists in creating an environment in which relationships between theseplayers can be more direct, cost efficient and interactive. Supply chainmanagement8 encompasses a wide set of interdependent, cross-industrybusiness strategies that can reduce costs, expand revenue and increase marketshare through improved efficiency and effectiveness of the supply chain. Theincreased value is realised by collaboratively balancing all resources, andoptimising the flow of goods, services and information from source to end-customer.

Supply chain integration is now regarded as an indispensable element forsuccess in manufacturing, and it is believed that supply chain superiority willprovide a decisive competitive advantage. And as integration increases, jointresource dedication will follow. In the new information-based economy, firmscompete on the basis of supply chain competitiveness rather than as individualentities. Industrial supply chains that are able to minimise frictions between theparticipants will gain competitiveness through price reduction and speed ofresponse. The ideal being the creation of a dynamic and flexible network ofcustomer/supplier relationships and information flows that is activated bycustomer demand and can respond rapidly and reliably to consumers’preferences.

The impetus for supply chain integration is driven by the new information andcommunication technologies (ICTs) based on microelectronics,telecommunications, computers and network-oriented software which haveprovided the infrastructure for the new global Information Economy to operate.9

Network-oriented ICTs through the compression of space, time and knowledgeallow for unprecedented speed and complexity in the management of theautomotive supply chain. Electronic networks comprise the technologicalarchitecture of the new global economy. IT10 convergence between back office(i.e. finance and administration; operations planning and execution; purchasing;product development; research and development; human resources; andinventory/asset management) and front office (i.e. sales, marketing and customerservice applications) systems to produce an integrated supply chain that canrespond rapidly to changes in customer demand is now a reality, thus making itpossible for all of a firm’s IT to be tightly integrated and architected for theInternet.

8 Supply chain management is concerned with how information can be used to change how and whenproducts are moved in the value chain to increase efficiency.9 It is important to note, though, that supply chain management (SCM) has roots which precede e-business.10 We use the term information technology (IT) to refer to computers, software, telecoms and the Internet.

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It is expected that the Internet will have a fundamental impact on how business isconducted, on firm behaviour and on industry structure.11 It is argued that e-business technologies are a critical source of value creation12 in the InformationEconomy, and thus provides the firm with a distinctive competency in themarketplace. E-corporations have the potential to redefine traditional valuechains and develop complex knowledge-sharing systems that connect pricing,product and design information with suppliers and customers. Theoretically, e-business holds great potential for revamping traditional supply chains to improvedata flow and streamline operations. An e-corporation recognises the power ofstrategic partnerships with its business constituencies. The alliances foster thecomplete transaction loop from product search to shipping confirmation withinventory updates, and assists in connecting to the market.

The e-business revolution in the global automotive industry is being drivenlargely by three of the world’s biggest automakers to consolidate and advancetheir global competitive positions.13 It is these multinational corporations (MNCs)which have taken the lead in adopting innovative applications of network-basedIT which are at the cutting-edge of e-business. Given the importance andmagnitude of these changes, we at the IRP 14 are particularly keen onunderstanding the impact that e-business has had on the South Africanautomotive industry. This is especially important since, apart from consultancies,e-business developments in the South African automotive industry are largelyundocumented.

This report focuses on the crucial link between e-business and the automotivesupply chain in the Eastern Cape and KwaZulu-Natal (KZN) provinces of SouthAfrica. We are particularly interested in separating reality from the hype andintoxicating rhetoric found in the business media. Our objective is to provideinsight into - and an in-depth understanding of - how automotive firms that belongto the Eastern Cape and KZN Benchmarking Clubs are responding to,transforming and gaining value from e-business applications. This is also aprime area for SME focus. Unfortunately, the small sample size used in the pilotphase was not amenable for in-depth research on the feasibility of e-business foremerging black contractors and small and micro enterprises. This limitation inour study will be rectified in the next phase of the research agenda.

This pilot study is guided by the following primary research questions:

• What are the key drivers of e-business in the South African automotive industry?

• How does top management in the automotive industry perceive e-business?

11 See, for example, US Government Working Group on Electronic Commerce (1999).12 Mainly because of the payoff in productivity, speed, supply chain integration, better planning, lowerinventories and more efficient logistics.13 General Motors, Ford and DaimlerChrysler.14 The IRP refers to the Industrial Restructuring Project which is based at the School of DevelopmentStudies (incorporating the Centre for Social and Development Studies), University of Natal, Durban.

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• For what purposes do automotive firms use e-business tools?

• What types of IT has each firm invested in?

• What kind of impact has e-business had on each company?

• What are the benefits of e-business for the enterprise?

• To what extent is each firm practicing e-business-enabled supply chainmanagement?

• What are the barriers or obstacles to the adoption of e-business technologies ineach enterprise?

The empirical data for this study was generated through five different lines ofinquiry:

• A questionnaire containing both open and closed-ended questions wasanswered by the IT director or an appropriate senior manager/director ineach firm (see Appendix 1). The questionnaire was pre-tested on a smallsample of firms in Durban, and reviewed by industry experts at the Schoolof Development Studies.

• Discussions with key informants who are experts on the automotiveindustry, both in South Africa and internationally.

• Factory visits to automotive assemblers and component manufacturers inboth the Eastern Cape and KZN.

• Active participation in Benchmarking Club workshops in both the EasternCape and KZN.

• A survey of the e-business literature, including the business press,academic publications and Internet resources.

It is difficult to forecast how the Internet revolution will unfold, as it is very much ablurry, fast-moving target. Further, e-business is still at a very early stage in itsdevelopment, and its outcome is far from certain. The notion that Internetapplication may lead to a sustained higher level of economic efficiency is stillvery much at the level of theory, and will need to be explored in practice.However, a number of international companies such as General Motors, Ford,Cisco Systems, and Dell Computer, which have taken the lead in adoptingInternet-based systems, are beginning to report positive results in two key areas:value creation and cost control. This notwithstanding, rigorous independentresearch is still needed in order to get a clearer picture of the problems and thepotential of e-business. This pilot study contributes to this goal.

The aim of this Report is to provide a preliminary analytical foundation to helpfocus the policy debate, and to prepare the foundation for further research work.At best, a pilot study can provide a window on broad issues, and it can framequestions and hypotheses. Accordingly, this report does both. The objective ofthis pilot survey was quite modest. The researchers set out primarily to obtain a

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general impression of the uptake of e-business in the Eastern Cape and KZNautomotive industry, and to map the IT architecture in each firm. We plan towrite an extended, more focused research proposal based on the findings of thepilot study. Moreover, the research findings were presented by the researchersto members of the KZN and Eastern Cape Benchmarking Clubs, at workshopsheld in Durban and Port Elizabeth respectively.15 The club members providedvaluable feedback on the findings, which are integrated into this report.

The report is organised as follows:

• This, the First Section of the report, introduces the key issues at stake,highlights the report’s research focus, and establishes the researchparameters.

• Section Two briefly reviews some of the key trends in the globalautomotive industry, especially that which pertains to the Internet and e-business.

• Section Three provides a brief description of the KZN BenchmarkingClub, concentrating on its terms of reference and some of the majorchallenges facing its members.

• Section Four presents a snapshot of the Eastern Cape BenchmarkingClub, along the lines of Section Three above.

• Section Five provides the conceptual foundation for the present study,and presents a consistent theoretical calculus for the analysis of thesurvey findings. In this section we define what is meant by the term “e-business”; briefly discuss the importance of networks; review potentialbenefits of e-business for the automotive industry; examine the issue ofsupply chain integration in the automotive industry; briefly consider thelikely impact of the Internet on value chains; and tentatively look at how e-business has been received by the South African automotive industry.

• Section Six presents a synopsis of the main research findings.

• Section Seven, the conclusion, ties the report together by flagging thecardinal points emanating from the research.

• Section Eight presents a set of recommendations for the club memberswith regard to improving their e-business performance.

• Section Nine briefly sketches the policymaking challenge for government.

• Section Ten identifies several areas where original and fundamentalempirical research is both possible and desirable.

• Section Eleven comprises the core empirical component of this report; itpresents and analyses the findings in full, in terms of the analyticalframework established in Section Five.

15 The empirical findings were also disseminated through articles in the Eastern Cape and KZNBenchmarking Club Newsletters.

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2. Key Trends In The Global Automotive Industry

2.1 The Move Towards Greater Collaboration

The automotive industry can best be described as a “producer-driven” supplychain with multi-layered production systems that are organised hierarchically intotiers (Gereffi 1999) (see Figure 2.1 on the next page). The governance structureof the automotive supply chain has changed somewhat during the last twodecades. Previously, subsidiaries of transnational assemblers developed localsupply networks. Today, original equipment manufacturers (OEMs) and 1st tiersuppliers tend to form parallel global networks based on the global leadsourcing/follower supply model (see Kaplinsky 2000: 28-29).

The transnational OEMs are the major players in co-ordinating productionnetworks, including their backward and forward linkages. OEMs are the keyeconomic agents because they have the power to exert control over backwardlinkages with raw material and component suppliers, and forward linkages intodistribution and retailing. Vehicle assemblers are putting immense pressure onthe supply chain, reducing margins to such an extent that it is becoming difficultfor the component manufacturers to sustain their strategic investment levels.

Apart from cost reductions, the assemblers are also making increasing demandsfor enhanced productivity, quicker delivery times and time to market. In order toimprove the overall efficiency of their operations, assemblers are now taking anactive role in specifying the production and quality systems of their suppliers(Humphrey 1999). This has been prompted in no small part by innovations ininternal production flow and quality assurance (such as just-in-time [JIT]production) which necessitate close integration of production schedules, logisticsand quality procedures between OEMs and their suppliers.

Simultaneously, component manufacturers16 are being encouraged by the OEMsto invest in IT to support the assemblers own e-business initiatives. There is aglobal trend towards greater collaboration between vehicle assemblers andcomponent manufacturers in design, research and developing components. Thissignals a move from the sequential and arms-length pattern of relationships thatexisted previously between assemblers and their component suppliers. Forexample, over the last few years, assemblers have shifted more of theresponsibility for product design and production to their 1st tier suppliers. Thesenew sourcing patterns have replaced the traditional supply chains and revampedthe relationships that OEMs have historically had with their suppliers. In many

16 The global automotive component industry is currently facing the threat of shrinking profit margins andlower volumes as a result of slackening demand from the OEMs, a steady rise in raw material prices,excess capacity in highly industrialised countries, and increasing fuel prices. Rapidly shifting industrytrends are forcing automotive component firms to redesign their supply chains and expand their supplychain management initiatives.

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cases, producer-driven value chains are being driven by 0.5 and 1st tier suppliersrather than OEMs (Raphie Kaplinsky, personal communication).

FIGURE 2.1 : A Stylised Version Of A Simple Automotive Supply Chain

Consumers

Dealer Networks

OEMs/Assemblers

0.5 Tier Suppliers17

1st Tier Suppliers

2nd Tier Suppliers

3rd Tier Suppliers

Lower-Tier Sub-Suppliers

There is a very real problem of excess global production capacity in passengervehicle output, especially in the stagnant markets of some highly industrialisedcountries. Concomitantly, the automotive industry has become intenselycompetitive, with the world’s automakers actively seeking ways 18 to improve the

17 During the last two years, the automotive industry has witnessed the emergence of a group of “supersuppliers” who constitute the 0.5-tier of production. The 0.5-tier (such as Johnson Controls) operate at theinterface between the assemblers and tier-one suppliers. The 0.5-tier suppliers tend to engage with theassemblers on collaborative projects such as modular design and production. Roughly speaking, they areboth component manufacturers and modular assemblers.18 This includes IT applications. For example, Scott Merlis, speaking at the University of Michigan'sannual automotive conference, estimated that General Motors, Ford and DaimlerChrysler will saveapproximately US$ 18.5 billion during the next five years by shifting design and engineering to theInternet. It is expected that this will cut vehicle-development times to 18 months (from 36 months) withoutsacrificing safety, performance or fuel efficiency (www.theautochannel.com). There are some industryexperts, however, who are skeptical of such lofty claims, and doubt whether the gains are likely to be solarge, and at so little cost. For example, a study by KPMG, the accounting and consultancy firm, theexpected cost savings of e-commerce for the automotive industry have been exaggerated (www.ft.com).

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competitiveness of their products; cut development, production and marketingcosts of all their future models; standardise models and rationalise platforms; andrestructure their operations in order to get new models to the market sooner thantheir competitors.

This, in turn, has had a major impact on those firms who are manufacturingprincipally for OEM supply. For instance, industry analysts have witnessed, inrecent years, a frenetic consolidation (through acquisitions and mergers) in theautomotive component manufacturing business, and a discernible shift towardssource designing and modular production.19 The latter entails greater strategiccollaborative efforts (especially in R&D) between automotive componentmanufacturers and the OEMs.20 Also, 0.5 and 1st tier suppliers increasingly takeon the responsibility of managing the rest of the supply chain. The incentive forthe automotive component manufacturers is the awarding of longer-term globallead sourcing contracts by the OEMs.

Moreover, the role of 1st tier suppliers (of modules/sub-assemblies to the OEMs)has shifted from that of being simply automotive component manufacturers tothat of “system integrators” or “network co-ordinators” in the supply chain (Barnes1999a). This means that the co-ordination and synchronisation function of the 1st

tier suppliers vis-à-vis the sourcing of components from a greater number oflower-tier (2nd, 3rd, etc.) component suppliers has become accentuated. In sum,the supply chain pipeline for the OEM/OES (original equipmentmanufacturer/supply) market can be traced from the lower tier suppliers whosupply components to the 1st tier suppliers, who then integrate the product into amodule/sub-assembly, which is then channelled to the OEM on a just-in-time(JIT) basis.

Recently there has also been a significant trend in the global automotive industrytoward increased outsourcing or “deverticalisation”. Global automotive firms areincreasingly focusing on their core competencies/distinctive capabilities, and tendto outsource low value-added manufacturing activities, peripheral parts of theirbusiness, and particular sets of sub-processes in which they are not specialists.The trend towards outsourcing of non-core functions underscores the importanceof robust and reliable inter-firm links, and the growing importance of inter-dependence between firms in the automotive industry.

19 Modular production refers to the supply of complete units, such as sub-assemblies, rather than individualcomponents.20 The notion of assemblers developing close relationships with their 0.5 and 1st tier suppliers makes senseconsidering the critical role played by the latter in the making of an automobile. The building of closerelationships does not, however, preclude the exercise of power by the OEMs. Tensions, therefore, doexist.

21

2.2 Increased Use Of The Internet

According to a study by KPMG21 and the Economist Intelligence Unit, theautomotive industry is lagging behind financial services, chemicals,pharmaceuticals, electronics, consumer markets and communications in terms ofe-business progress (www.ft.com and www.just-auto.com).22 Nonetheless, themajor players in the global automotive industry are beginning to increasinglyadopt the Internet for car retailing, electronic trade exchanges (Section 2.3) andinter-business e-commerce (Section 2.4). The growing importance of theInternet in the global automotive industry is captured and reflected in thefollowing quote by Jacque Nasser, CEO of Ford:

The Internet is transforming every piece of our company and our industry. We’llpush this transformation even further to bring sustainable results to ourcustomers, our suppliers, and our dealers (Business 2.0: An IntelligenceMagazine, 01/01/2001, p.158).

Jack Smith, GM’s chairman argues that:

A year ago, everyone was all over us about what we were doing with the Internet.A lot has changed and reality has set in. One could say that it was overblown andthere’s nothing to it, but we don’t feel that way. The Internet is a way thecustomer will interact with the dealer...[and] the manufacturer with the dealer.So we continue to stay very focussed on development of an Internet strategy. Wesee it as a powerful opportunity to take a lot of time and cost out of the equation(www.ft.com).

The leading assemblers are actively using the Internet as a tool to market theirvehicles. This is not altogether surprising, considering that, according to A.T.Kearney’s analysts, as much as 50% of vehicle buyers in the US have beeninfluenced by information gained through conducting research on the Internet(www.cartoday.com). General Motors, for instance, has set up an e-commerceunit in 1999, called e-GM. The objective of which is to increase GM’s Internetmarketing efforts to rapidly grow online vehicle selling. Ford, however, hasintroduced a novel marketing ploy through its website (www.fordvehicles.com),which is designed to provide online shoppers with comparison tools which listfeatures of Ford vehicles side-by-side with its competitors.

However, the leading assemblers have gone beyond Internet marketing. Anexample of an OEM which is at the forefront of e-business would beDaimlerChrysler. DaimlerChrysler has recently announced the introduction of anInternet-based programme called FastCar. The FastCar project will allowDaimlerChrysler to leverage Internet technology, interconnecting the company's

21 The accounting and consultancy firm.22 E-business progress was measured by advances in technology and the degree senior management wasinvolved in implementation.

22

design; engineering; manufacturing; quality; finance; procurement; supply; sales;and marketing activities. FastCar is the e-architecture which it is believed willprovide real-time transparency to the product development process; increase itsspeed (i.e. cut development cycles) and precision (i.e. test parts and assemblyprocesses before they are used for production); reduce waste from theadministrative, supply and logistics processes.; and increase product quality.FastCar also provides the digital tools to communicate throughout the companyand with DaimlerChrysler’s supplier network. DaimlerChrysler has also recentlyconsolidated its Internet business activities into a new unit called DCX Net toimprove coordination and efficiency in areas ranging from purchasing to sales(www.just-auto.com and www.theautochannel.com).

Nissan North America is in the second phase of a two-year project to use theInternet to integrate customer relationship management (CRM) software with itsmarketing and customer retention systems (www.nissandriver.com). Nissanplans to use the Internet to connect its call centres and fulfillment departments toits dealerships in North America. The goal is to access customer information,analyse data and demographics, profile buyers, and do data mining via theInternet.

Dana Corporation is one example of a component manufacturer which isoperating at the e-business frontier. Dana is currently implementing a VirtualTime Engineering (VTE) programme, and a web-enabled global e-procurementand supply chain management system to enable the company to more efficientlymanage its US$ 8 billion in annual world-wide purchases (just-auto.com). DanaCorporation is one of the world's largest suppliers to vehicle manufacturers andtheir related aftermarkets. The company operates some 320 major facilities in 32countries and employs more than 80 000 people. The company reported salesof US$ 13.2 billion in 1999 (www.dana.com).

General Motors, Ford and DaimlerChrysler also plan to exploit web-basedtechnology for business-to-employee (B2E) activities (www.ft.com). Theobjective is to intensify electronic communications with their respectiveworkforces through heavily subsidised Internet access. Thereby, making iteasier to channel corporate communications and information at the coal-face,and enabling employees to access the company’s “knowledge base”(www.cartoday.com).

23

2.3 Internet-Based Trading Exchanges

In the global automotive industry there has been a discernible trend towardsInternet-based electronic trading communities which introduce new suppliers andcustomers to each other. B2B online-trading exchanges for supply chaininteractions in open, Internet-based markets are an attempt to transform industrysupply chains that have worked in the same way for decades. Increasingly,global supply chains in the automotive industry are being formed and facilitatedby online exchanges.

Delphi Auto Systems, North America’s largest automotive parts maker, recentlyannounced that it would take an equity stake and join the European onlineautomotive exchange, TecCom. The move will give Delphi access to the US$ 80billion European automotive spare parts market and help it to find customersoutside its main buyer and former parent, General Motors (Financial Times, 6September 2000). Similarly, other large suppliers, such as Johnson Controls, theinteriors and seating group, are developing their own e-business platforms(www.ft.com).

Covisint, the giant Detroit-based global automotive virtual marketplace forprocuring supplies, has been developed by General Motors, Ford andDaimlerChrysler, and has been recently joined by Renault-Nissan. Oracle andCommerce One are the main technology providers for the exchange, and haveequity stakes in Covisint. Covisint’s founding companies plan to move all theirbusiness to the joint electronic exchange with a turnover of US$ 250 billion and60 000 suppliers (The Economist, 23-29 September 2000). The major globalautomotive suppliers have already publicly expressed their support for Covisint.23

It has been estimated that dealing with suppliers online could reduce the cost ofmaking a vehicle by as much as 14% (The Economist, 23-29 September 2000).

Apart from serving as a central marketplace for car components, supplies,services and information procurement, Covisint is aiming to offer integratedsupply chain management, product development, production planning, and isalso negotiating links to other online trading hubs (such as Metalsite.com, e-steel.com and MetalSpectrum). It is envisioned that universal and unified supplychain enterprise networks such as Covisint could provide the basis for a commoncommunications network for the global automotive industry. In a few years time,this concept will supposedly enable companies to reduce the number of low-value business processes, both upstream and downstream, by having theirbusiness partners perform such operations. This is in line with the growing trendtowards outsourcing in the global automotive industry that was identified inSection 2.1.

23 These companies include: A.K. Steel; ArvinMeritor; Autoliv; BASF; Dana Corporation; DelphiAutomotive; Denso International America; Dura; Ernie Green Corporation; Federal Mogul; Flex-n-Gate;Freudenberg NOK; Johnson Controls Inc.; Lear Corporation; Magna International; Plastech; TowerAutomotive; Visteon; and Yazaki International.

24

The launch of Covisint, however, has been delayed due to regulatory problems(antitrust issues, etc.) in the US and Germany. There was some concern thatdominant virtual exchanges will reduce free competition and lead to theestablishment of cartels. This has raised fears about the possibility of collusionand price-fixing by the big companies (Financial Times, 11 September 2000). Thecollective buying power of industry giants could theoretically be used to drivedown suppliers’ prices and squeeze some of them out of the market. However,after careful deliberation, both the US Federal Trade Commission (FTC) and theGerman Bundeskartellamt (cartel authority) decided unanimously not to blockCovisint. The aforementioned regulatory agencies argued that the Covisintventure, i.e. the formation of potentially the world's largest e-business tradingexchange, held great promise for reducing costs and increasing efficiencies in theautomotive industry, even while it increases the power of the assemblers.

GM, Ford and DaimlerChrysler also plan to launch a joint internet portal, calledCollisionLink, which will allow dealers and their wholesale customers, such ascollision and mechanical repair shops, to source original equipment partselectronically (www.ft.com). This is a joint venture with Bell and Howell, whichwill be the lead technology partner. The B2B electronic-based ordering systemfor OEM replacement parts and service will initially be introduced in NorthAmerica in early 2001, thereafter it will be rolled out globally. It is envisioned thatthe B2B Internet-based system will eventually support all dealer wholesale partstransactions, and will automate and integrate the supply chain between the OEM,its dealers and collision and mechanical repair workshops. The global market forautomotive parts and services is estimated to be worth US$ 550 billion annually(www.cartoday.com).

CollisionLink aims to cut costs and increase efficiency by speeding up andautomating the ordering and fulfilment processes between parts dealers andrepair shops. General Motors, Ford and DaimlerChrysler aim to control a biggershare of the world’s collision repair business, to increase sales of OEM parts,and to give their franchised dealers a competitive edge over the independentparts manufacturers (www.cartoday.com).

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2.4 B2B E-Commerce

The hype in the media focuses on business-to-consumer (B2C) Internetinteractions along the lines of the retail dot.com companies (e.g. Amazon.com,Musica.co.za, etc.). This is commonly referred to as e-commerce, therebycreating the misconception that Internet-based e-commerce is primarily aconsumer business. However current trends seem to indicate that e-commerceis likely to be dominated by business-to-business (B2B) e-commerce (typically asupplier, manufacturer or distributor) in the near future, both in terms of volumeand the number of firms affected (see Table 2.1 on the next page).

There is a great deal of variation, however, in the numerous B2B e-commerceestimates of management consultancy and market research firms. The hugevariance is due to differences in how e-commerce is defined and how it ismeasured (see OECD 1999). According to Gartner Group, which is anauthoritative source on measures of the Internet economy, the world-wide B2Bmarket for all industries and sectors is expected to grow from R870 billion in2000 to R43.7 trillion in 2004, representing 7% of the forecasted R630 trilliontotal global sales transactions (F&TNet 2000: 30). These figures are, however,speculative, and therefore should be viewed cautiously.

Many astute observers believe that B2B e-commerce, linking buyers and sellerselectronically along the supply chain, is set for a rapid take-off in the automotiveworld.24 The longer and the more complicated the supply chain, as is the casewith the automotive industry, the bigger the potential gains from B2B e-commerce are likely to be. Table 2.1 shows that the automotive sector is thesecond largest industry in vertical B2B world markets, and it is growing at a rapidpace. It is therefore safe to assume that, based on current projections, B2Btrade in the automotive industry is likely to flourish in the years to come.

24 See www.just-auto.com and www.cartoday.com.

26

TABLE 2.1: The Rise Of Global B2B E-Commerce (US$ billions)

INDUSTRY 1998 1999 2000 2001 2002 2003Computing &Electronics

20 50 121 229 319 395

Motor Vehicles 4 9 23 53 114 213Petrochemicals 5 10 23 48 97 178Utilities 7 15 32 63 110 170Paper & OfficeProducts

1 3 6 14 31 65

Shipping &Warehousing

1 3 7 15 33 62

Food & Agriculture 0.3 3 6 13 27 54Consumer Goods 1 3 6 13 26 52Pharmaceutical &Medical

0.6 1 4 9 20 44

Aerospace &Defence

3 7 15 26 34 38

Construction 0.4 2 3 7 14 29Heavy Industries 0.1 1 3 5 9 16Industrial Equipment 0.1 1 2 5 9 16Total $43bn $108bn $251bn $500bn $842bn $1,332bn

Source: Forrester Research quoted in Intelligence: Business in the Internet Age, May 2000, p.51.

The key trends identified in this section of the report emphasise the centrality ofIT in improving the operational efficiency and overall organisational effectivenessof automotive companies. In particular, there is a heightened need forautomotive companies to:

• Maintain flexible internal infrastructures that allow their organisations toadapt quickly and effectively to changing market conditions.

• Set up an appropriate (i.e. customised and robust) IT infrastructure inorder to engage in B2B e-commerce, and to participate in Internet tradingexchange networks.

• Fully network every aspect of their internal and external businessoperations.

• Use the Internet to: move business processes online; connect to suppliers,customers and partners; understand and respond better to theircustomers; and empower their employees with the rapid delivery ofmission-critical business information.

• Reduce information asymmetries by adopting seamless business-to-business (B2B) electronic communication. The objective here is toexchange richer and more timely information between trading partners,and to send information deep into the value chain.

• Proactively engage in IT-enabled supply chain integration andrationalisation.

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3. The KZN Benchmarking Club

The KwaZulu-Natal Benchmarking Club was initially formed by a group of elevenautomotive firms in November 1997, and has subsequently increased to twelvemembers. The Club has as its prime objective the continuous improvement of itsmembers operational competitiveness through the generation of comparativedomestic and international benchmarks.25

During the time of the e-business survey, the Club consisted of twelve members:eleven automotive component manufacturers (viz. Autoplastic; DCM; Feltex;G.U.D. Filters; Hesto Harnesses; Natal Die-Casting; Ramsay Engineering;Shurlok; Smiths Manufacturing; Venture; and Webroy) and one vehicleassembler (viz. Toyota South Africa). However, one of the componentmanufacturers was unable to participate in the e-business survey because thefirm in question was operating in “crisis mode” and undergoing a disruptiverestructuring process. The net result of which meant that all benchmarking clubactivities relating to this firm were temporarily suspended during this hecticperiod. Nevertheless, the eleven club members that comprised the sample forthis study are representative of the major players in the KZN automotive industry.The OEM, Toyota SA, is the major assembler in KZN and the ten automotivecomponent manufacturers are the key component manufacturers in the province.However, it is important to emphasise that club members are firms who areseeking to improve their competitiveness through a learning network. This is afeature which potentially distinguishes them from the province’s other automotivecomponent manufacturers who are not part of the Club. This, however, does notmean that the other component manufacturers are not striving to become world-class manufacturers in their own way.26

The component manufacturing firms that are part of the KZN Benchmarking Clubsupply to Toyota SA (both OEM and OES distribution channels), the other twoKZN OEMs (viz. MAN Trucks and Bell Equipment27), and to OEMs based in theEastern Cape and Gauteng (Barnes 1999b). In addition, the independentaftermarket (operating in relatively stable technology products such as batteries,air filters, etc.) and the export market are also significant markets for clubmembers.

The automotive components manufactured by club members can be brokendown into the following categories: bonnet and gear locks; automotive trim; metalforming/pressing; electronics; foam/plastic/rubber moulding; engine parts; andheat transfer. Club members’ firms are located mainly in the Southern Durbanindustrial basin, Pinetown and Pitermaritzburg.

25 The Eastern Cape Benchmarking Club has a similar mandate.26 Again, the same applies to the Eastern Cape Benchmarking Club.27 An articulated dump truck manufacturer.

28

The ownership profile of the automotive component manufacturers that are partof the KZN Benchmarking Club comprises mainly of subsidiaries of South Africanowned holding companies, with the exception of three firms: two privately ownedindependent South African companies, and one owned by a US multinational. Inview of the global trends in the automotive industry (such as networking,consolidation, the design and marketing strength of MNC operators, etc.) andgiven that the South African automotive industry is relatively small, it is highlyunlikely that South African automotive component companies supplying to theOEM/OES market can continue indefinitely as independent 1st tier componentfirms. The prospects of independent 1st tier component firms becoming lockedinto closer relationships with multinational corporations (MNCs), or even beingacquired by MNCs, is therefore quite high.

The Durban-based OEM, Toyota South Africa, is a largely locally owned firm withthe Toyota Motor Corporation (Japan) owning only 27.8% of the company. Itassembles almost exclusively for the domestic market. In 1998, Toyota SAexported only 1037 passenger cars (down 13.7% on 1997 figures) and 1813commercial vehicles (down 30.3% on 1997 figures) (NAACAM 1999: 12). ToyotaSA is one of two remaining South African owned major vehicle assembles.28

Toyota is generally regarded as the most successful vehicle manufacturer inSouth Africa in terms of both passenger and commercial vehicle sales, in which itis the indisputable market leader (Barnes 2000). Notwithstanding this, ToyotaSA reported a R94.9 million loss from ordinary operations for the first half of2000, 108% higher than for the same period in 1999 (www.cartoday.com).

Toyota SA has rather weak networking links to global value chains. Toyota SA’s“connectedness” appears to be largely local, primarily because its licensingagreements prevents it from accessing Toyota Japan’s global networks. ToyotaSA has not yet been incorporated into Toyota Japan’s global sourcingoperations. Toyota SA’s 1st tier suppliers, for instance, have not forged an equityrelationship with Toyota Japan’s lead source automotive componentmanufacturers. In addition, Toyota Japan and its global lead source componentsuppliers have not initiated and secured manufacturing operations in SouthAfrica, unlike the German-owned OEMs. It may well be that in order for ToyotaSA to succeed under the MIDP29 it may need to become a full subsidiary of itssource company and be integrated into global supply and distribution networks(Business Report, 12 September 2000).

Toyota SA’s competitors are wholly owned subsidiaries of their overseas parentcompanies and therefore have a direct link to global supply and distribution

28 The other South African majority-owned OEM being Delta Motor Corporation.29 In September 1995 the government launched a Motor Industry Development Programme (MIDP) topromote greater integration of the domestic automotive assembly and component industries into the globalautomotive arena. The primary objective of the MIDP was to improve the international competitiveness ofthe South African automotive sector, and to grow the assembly and component industries, especiallythrough exports. The MIDP is operational until 2002.

29

networks. Unlike VW and BMW30 who have been instrumental in facilitatingcomponent export contracts, Toyota SA does not act as a major conduit forautomotive component exports for its suppliers, many of which are clusteredaround its Prospecton plant in Durban.31 However, Toyota SA through its officialdealerships controls the replacement market for automotive components. Thisprovides a channel into the original equipment supply (OES) market for thoseclub members who manufacture replacement parts.

The lack of global exposure will make it increasingly difficult for Toyota SA and itsautomotive component manufacturers to sustain the inevitable waves ofinternational competitiveness pressures that will cascade over them. In the newglobally networked operating environment, component manufacturers who areheavily dependent on Toyota SA will be at a serious competitive disadvantagevis-à-vis the more outwardly-oriented automotive component manufacturersbased in KZN, Eastern Cape and Gauteng. Inclusion in the global automotivesupply network is critical for survival.32 However, the KZN automotivecomponents industry as a whole is not locked exclusively into the domesticautomotive market. On the contrary, Barnes (1999b) shows that export volumeshave increased significantly over the last few years. The recently promulgatedAfrican Growth and Opportunity Act (AGOA) in the US should enable the SouthAfrican automotive industry to strengthen exports to the United States. AproposAGOA, South African produced vehicles will, subject to certain conditions, qualifyfor duty free and quota free access into the US from January 2001 to December2008.

30 BMW plans to export approximately 37 000 units of the 3-series in 2001 to various international markets(mainly the UK, US and Japan). It is estimated that about 400 South African supplier companies willbenefit from BMW’s export venture (www.cartoday.com).31 Many of the latter are also club members, and hence respondents in this IRP e-business survey.32 Only then will suppliers be able to compete for business from other assemblers, develop strategicalliances to gain broader geographical coverage, and gain access to technology and designs that areessential for winning contracts.

30

4. The Eastern Cape Benchmarking Club

The Eastern Cape Benchmarking Club was formed in 1999, and consists ofseven members: one OEM (viz. Delta Motor Corporation) and six automotivecomponent manufacturers (viz. Gemtec; Spicer Axle; the two Shatterprufeplants33; Guestro Automotive Products; and Guestro Forge).34 One automotivecomponent manufacturer was unable to participate in the IRP e-business survey.The two Shatterprufe plants completed one questionnaire as they have a similarIT infrastructure and similar IT management systems. Similarly, the IT director atGuestro Automotive Products (GAP) filled out one questionnaire for both GAPand Guestro Forge.

The seven club members are concentrated in the Port Elizabeth-Uitenhageautomotive industrial zone. The automotive components manufactured by clubmembers can be broken down into the following categories: laminatedwindscreens and toughened door and rear glasses; rear driving axles; front andrear hubs and spindles; propshafts; suspension products; steering gearassemblies and components; closed die hot forgings; axle shafts; CV joints; towhooks; cylinder heads; and intake manifolds. The component manufacturerssupply to the OE, domestic, P&A, and export markets. The ownership profile ofthe component manufacturers is as follows: one is a subsidiary of a foreigncompany, and the others are subsidiaries of domestic companies.

In recent years Delta Motor Corporation has experienced a growth in directsourcing from foreign suppliers. The Eastern Cape OEM’s supplier base can besummarised as follows: 42.7% of Delta’s raw material and component suppliersare international firms, 29.7% of suppliers are local (i.e. located in the EasternCape), and 27.6% of suppliers are national (i.e. located in South Africa butoutside the Eastern Cape). Of Delta’s five major component suppliers, three areforeign-based35 and the remaining two are located in the Eastern Cape36. Fourof Delta’s five major domestic component suppliers are located in the EasternCape (viz. Port Elizabeth, Queenstown and Uitenhage), with the other located inGauteng (viz. Johannesburg). Collaboration and consultation with domesticsuppliers usually takes the form of workshops, joint ventures and supplierdevelopment programmes.37

Delta Motor Corporation is a South African majority-owned OEM38 producingpassenger cars and commercial vehicles primarily for the South African market.

33 Struandale and Neave Township, Port Elizabeth, respectively.34 Guestro Automotive Products and Guestro Forge are part of the Dorbyl Automotive Technologies Group,the largest automotive component manufacturer in Southern Africa.35 Japan (Isuzu Motor Ltd.), Germany (Adam Opel AG) and Brazil (General Motors of Brazil) respectively.36 Lear Corporation (Port Elizabeth) and Spicer Axle (Uitenhage) respectively.37 Supplier development programmes tend to focus on domestic suppliers with quality and/or supplyproblems, as well as suppliers with export potential.38 Present ownership of Delta: 51% local management and 49% General Motors.

31

For example, in 1998 Delta exported only 350 passenger cars (down 44.7% on1997 figures) and 1600 commercial vehicles (down 16.1% on 1997 figures)(NAACAM 1999: 12). Delta has a technical agreement with the Detroit-basedGeneral motors (GM). Within the scope of the technical agreement, Delta hassubstantial independence from GM vis-à-vis sourcing components. Delta,however, is crafting a closer relationship with General Motors (GM), an OEMwhich is at the forefront of the e-business revolution. The impact of thisrelationship on Delta are likely to be:

• Joint supply negotiations.

• Greater export opportunities.

• Realignment of the organisation to core business processes.

• Consolidation of material supplies.

• Greater participation in business-to-business (B2B) trade.

• Electronic dissemination of supplier quality procedures.

• Business-to-customer (B2C) transactions by allowing online ordering ofvehicles and stock visibility in P&A.

• More stress on global sourcing and integration with GM’s World-widePurchasing Group. This could lead to re-sourcing.

Figure 4.1 (on the next page) provides an indication of how important theautomotive component manufacturers are as a source of employment in bothKZN and the Eastern Cape. Figure 4.1 includes the average employment figuresfor thirteen (out of a total of nineteen) 39 club members only, all of whom areautomotive component manufacturers. The average employment figures wouldbe boosted considerably if we were able to get accurate employment figures forthe 2 OEMs (viz. Delta and Toyota SA). Figure 4.1 shows that averageemployment levels peaked in 1996 (455.00 for the Eastern Cape and 263.50 forKZN). Thereafter it has steadily declined, reaching a low of 216.04 in KZN and335.0 for the Eastern Cape.

39 12 KZN club members and 7 Eastern Cape club members.

32

FIGURE 4.1

Average Number of Employees (Component Manufacturers)

0.00

100.00

200.00

300.00

400.00

500.00

1994 1995 1996 1997 1998 1999

No

of

Em

plo

ye

es

Eastern Cape (N=5)

KZN (N=8)

Source: IRP Database

Figure 4.2 below illustrates the average turnover figures for the club members,and hints at the potential contribution that the component manufacturers in theBenchmarking Clubs make to the regional and national economy. It is importantto bear in mind that Figure 4.2 does not include the turnover figures for 6component manufacturers and the 2 OEMs.40 According to Figure 4.2, averageturnover figures for the Eastern Cape Benchmarking Club peaked in 1997 (R 99737 000), and thereafter it has steadily deteriorated. By contrast, averageturnover figures for the KZN Benchmarking Club has improved between 1996 (R47 345 922) and 1999 (R 60 779 499).

FIGURE 4.2

Average Turnover (Component Manufacturers)

0

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

1995 1996 1997 1998 1999

Ra

nd

s

Eastern Cape (N=3)

KZN (N=8)

Source: IRP Database

40 Some club members regard turnover figures as strictly confidential within the Club (and not to bepublicly divulged), while others are reluctant to reveal their turnover figures to the IRP researchers. Hence,the missing cases.

33

5. E-Business And The Automotive Supply Chain

5.1 What Is E-Business?

E-business is electronic business, and, as such, it is not a new invention.41 Whatis relatively new, however, is the application of Internet technology to open up aworld of low-cost online opportunities for companies of all sizes. The Internetcreates the possibility for a new era of networked economic activity with its own,unique set of competitive dynamics, and digitally-based economic arrangements.Today, the focus is on networks that use open, non-proprietary Internet protocolsand the Internet’s key infrastructure applications (i.e. email, the World Wide Web,HTML, and the browser). This differs from earlier forms of e-businesstechnologies such as EDI which “required pre-existing relationships, expensiveand complex custom software, and dedicated communication links … In manycases, the system required strictly compatible equipment” (OECD 1999: 28).

E-Business is essentially an Internet application. The Internet is an ubiquitous,interactive system based on a multipurpose digital computing platform whichallows the simultaneous exchange of information in digital form among an infinitenumber of nodes, each with its own computing power (Kenney and Curry 2000).The Internet is a prime example of a radical “disruptive technology” 42 that has thepotential to induce structural transformation, and disrupt and change the waybusiness is done. This is in contrast to a “sustaining technology” which offers thecompany predictable improvements.

The new e-business technology refers to the IT of the Internet revolution – acommon foundation, standards-based tools, platform-independent browsers, andnetwork-facilitated communication and collaboration. E-business entails a neweconomic morphology, organised around tele-communicated networks ofcomputers which are at the heart of information systems and communicationprocesses. At the core of the connectivity of the global economy, and of theflexibility of informational production there is a new form of business organisationbased upon networks and tooled by IT: the e-corporation. An e-corporation is aflexible, adaptive organisation, able to evolve with its environment.

E-business is believed to be in full coherence with the productive, creative logicembedded in the digital Information Economy. An e-corporation recognises thepower of strategic partnerships with its business constituencies.43 The alliancesfoster the complete transaction loop from product search to shipping confirmation 41 For example, large corporations in South Africa have, for many years, been using electronic datainterchange (EDI) supplied by value-added networks (VAN) operated over leased telephone lines.42 Examples of disruptive technologies include: the steam engine; electricity; internal combustion engine;the transistor; telegraph; railroad; automobile; airplane; and telephone.43 Brown (1996: 27) lists the following types of strategic alliances: licensing agreements; joint ventures;buyer-seller relationships (such as JIT production); R&D alliances; marketing agreements/dual marketing;franchising; consortia between companies; and joint access to technology and markets.

34

with inventory updates. An e-corporation is essentially an enterprise which isdesigned for success in the Information Economy. 44 E-business brings into playan organisation’s resources and partners in new and innovative ways to clearstrategic advantage. However, the potential of e-business goes far beyond newtechnologies. It has the potential to impact and engage all aspects of a business(strategy, process, organisation and systems) to extend the business beyond itscurrent boundaries. In this sense, e-business is a source of significant strategicadvantage.

Although the precursor of the Internet appeared in the late 1960s, e-business isprimarily a product of six significant transformations in the economy (see Figure5.1): the globalisation of markets; shift towards an economy based on knowledgeand information; the growing prominence of ICTs in the economy; innovations inbusiness organisation and practice (viz. JIT, TQM, Knowledge Management,outsourcing, strategic alliances, etc.); the liberalisation of the telecommunicationssector in OECD countries; and technological innovations such as email, theWorld Wide Web, Internet browsers, and the expansion in the volume andcapacity of communication networks (viz. optic fibre, digital subscriber linetechnologies, and satellites). These six factors are yoked together, and areclosely linked to the emergence of e-business.

FIGURE 5.1 : Interrelated Factors Giving Rise to E-Business

E-BUSINESS

GlobalisationOf Markets

Shift TowardsAn Economy

Based OnKnowledge

AndInformation

The GrowingProminence Of

ICTs In TheEconomy

Innovations InBusiness

OrganisationAnd Practice

TechnologicalInnovation

TelecomRegulatory

Reform

44 The New Economy is global and it is based on business networks. Information and knowledge form thebuilding blocks of the New Economy, and it is IT which provides the technological architecture whichamplifies and focuses brain power (rather than muscle power, as was the case in the Industrial Revolution)through rapidly proliferating “information-rich” connections.

35

A consistent definition of e-business is presently lacking in the literature. Thefollowing definition is provided to help focus the policy debate. E-business refersto a suite of information and communication technologies, software, protocolsand standards for networking between computers, which is embedded withinbusiness processes. Simply put, e-business is thus any business processperformed via a computer-mediated network (see Box 5.1 for the different typesof e-business). “Business” refers to all activity that generates value both within afirm (internally) and with suppliers and customers (externally). Economic value 45

is added to internal and external business processes through the use of flexible,multi-interface connections emerging through digital, electronic networks. E-business is thus not, as media hype would have it, only about buying and sellingover the Internet, but improving business performance through networkconnectivity to improve service and “reduce costs, open new channels, …transform competitive landscapes” (Fortune, 25 October 1999), and identify newvalue streams.

BOX 5.1: Types Of E-Business

There are at least six different types of e-business, viz.:

• business-to-business (B2B)

• business-to-customer (B2C)

• business-to-employee (B2E)

• business-to-government (B2G)

• customer-to-customer (C2C) (i.e. consumers’ auctions as epitomised by the auction siteeBay.com)

• consumer-to-business (C2B) (i.e. reverse auction sites such as Priceline.com)

B2G, C2C and C2B e-commerce are outside the scope of this study, and will not beexplored further in this report.

E-business and e-commerce tend to be used interchangeably in the literature.The two terms often get conflated into an amorphous textual reading. Thisconceptual confusion often leads to policy incoherence. We argue that e-business transcends e-commerce. E-commerce refers to business transactionson the Web, and is seen primarily as a way to increase external revenues andbusiness. E-business, on the other hand, refers to the full range of businesstransformations brought about by the use of electronic networks. E-business thus hasa much more ambitious goal, which goes far beyond buying and selling over theInternet, or e-commerce, and deep into the processes and culture of anenterprise. It involves every aspect of a company’s business, and it is expectedto create a much more interactive business environment to improve businessperformance.

45 Value is measured in terms of prospective capital growth rather than profit rates.

36

While the business media tend to focus on the retail business-to-consumersegment of e-commerce (i.e. Amazon.com, Borders.com, etc.), it is reallybusiness-to-business (B2B) e-commerce which dominates the market, and it isgrowing rapidly, albeit from a small base. Inter-business e-commerce can bedivided into two categories: open marketplace-based trade and direct trade betweenpartners. The former takes place at various Internet-based auctions or exchangesites, whilst the latter occurs either through a firm’s website which has an onlinepurchasing function or an EDI-type network. Presently, much of the B2B e-commerce transactions are US based. But this will change over time. B2B e-commerce is likely to spread globally and grow rapidly because of its potentiallysignificant impact on business costs (associated with inventories, sales execution,procurement, and distribution), and its assumed increase in productivity gains.

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5.2 The Importance Of Networks

In his magnum opus devoted to the analysis of economy and society in theInformation Age, Manuel Castells (1996, 1997 and 1998) lucidly documents therise of the “network society” and the “culture of virtuality”.46 Castells, adopting amaximalist approach, correctly states that the information mode of development isthe current phase of capitalist development. It is this information mode thattransforms production and gives rise to a society fundamentally based uponnetworks of information exchange. And the Internet, as a global matrix ofinterconnected computer networks, is emblematic of the power of informationflows, and intra- and inter-firm linkages in knowledge-intensive industrialdevelopment.

In the Information Age, the critical organisational form in the automotive industryis networking. A network is a dynamic nexus of inter-dependent units (Castells1996, 1997 and 1998). In a network it is IT which provides the fundamental basisfor organising instrumentality. And it is the ubiquitous Internet, with its open-ended structure, which provides the technological medium that enables globalproduction networks to function in business. As highlighted in Section 5.1, e-business technologies are a critical source of value creation in the InformationEconomy. The most critical distinction for a firm in this organisational logic is tobe or not to be in the network. Firms that are not anchored in the networking logicare at a serious competitive disadvantage, and at risk of being bypassed oreliminated from the mainstream of economic development. In sum, a firm’s fatedepends on its positioning in the network.

The bedrock of e-business is, therefore, the network, which is the physicalinterconnection of IT devices to enable seamless information transfer and accesswithin the enterprise, and be extensible across the entire supply chain. Thisensures maximum benefits to applications in the supply chain process. The e-business network should be seen as an evolutionary, complex web ofconnections between firms which are “online”. It is argued that the value of beingnetworked increases exponentially with the number of connections, while thecosts only increase linearly.47

Gereffi (1999) views the co-ordination of the entire value chain as a key source ofcompetitive advantage that requires using networks as a strategic asset.Improving competitiveness requires both intra- and inter-firm restructuring whichplaces strong emphasis on the linkages between firms, i.e. to the value chainsand clusters within which enterprises are embedded. There is thus a shift awayfrom primarily firm-centred activity to a “network-centric” focus (see Castells1996), in which companies will have to conceive of themselves as located within

46 The “culture of virtuality” refers to the culture that is embodied within the network society.47 This proposition is attributed to Bob Metcalfe, founder of the networking vendor, 3Com (FinancialTimes, 18 October 2000).

38

a shifting network of suppliers, competitors and customers – their boundaries willaccordingly be highly fluid.

E-corporations believe that they have discovered a competitive advantage inmaking information and knowledge available to their networked partners. Suchnetworks enable trading, sharing and enhancing knowledge to build value formutual benefit. Firms work in a strategy of shifting alliances and partnerships,specific to a given product, process, time and space. Moreover, these co-operations are based increasingly on sharing of information. New ICTs based onmicroelectronics, telecommunications, computers, and network-oriented softwarehave provided the digital nervous system for this New Economy to operate, andhave moved computer networks to the centre of the international economicinfrastructure.

Network-oriented ICTs through the compression of space, time and knowledgeallow for unprecedented speed and complexity in the management of theautomotive supply chain. Interconnected digital networks enable firms (“theinsiders”) to weave the constituent elements of the supply chain into competitiveproduction systems. The flexibility of the Information Economy, for example,makes it possible for OEMs to source their components anywhere in the world, inan endlessly variable geometry of value searching. This implies avoidingeconomically valueless, and circumventing devalued, territories or firms. Thus thesystem is exclusionary.

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5.3 The Potential Advantages Of E-Business

Finding the most valued uses for the Internet in business will probably take sometime. The forces and issues in play are only beginning, and the final outcome onbusiness models and market structure is still uncertain. Hence, it is difficult toforecast how the specific applications of the Internet will unfold, and to predict theultimate magnitude of the changes set in motion. Nonetheless, some salient,theoretical advantages of e-business for the automotive industry are discussedbelow, while for the sake of brevity, a fuller list of potential benefits of e-businessfor the automotive supply chain is to be found in Box 5.2. The discussion whichfollows is based on the possibilities of the Internet for supply chain integration, asput forth by IT specialists, industry experts and advocates of the Internet in thebusiness literature.

It is envisioned by proponents of the Internet that much of the benefits of e-business are likely to be derived from the new possibilities that the Internet offersfor communication and distributing information in real-time. The benefits of e-business can be categorised into two key areas: viz. the potential for valuecreation and cost control. An important caveat is that e-business does not offer a“friction-free” mode of exchange devoid of transaction costs. The emergence ofintermediaries, and the costs associated with establishing trust and reducingrisks inherent in Internet trade, alone scuppers Bill Gates’ vision of the Internet asa tool for “friction-free” capitalism.

In principle e-business tools have the potential to lower operational costs throughautomated order and fulfilment processes, provide the ability to transact businessand access information in real-time, and connect to new and existing markets.The potential for reduction in supply chain costs through online purchasingrepresents a significant profit opportunity across the value chain. Since real-timeinformation on forecasts, selling and inventory levels travel immediately throughthe supply chain, companies are more likely to maintain lower inventory levelswithout increasing the risk of part shortages. Stockpiles of inventory within thesupply chain for “just-in-case” events are, therefore, minimised because demandinformation is directly available to the entire supply chain.

The links between internal primary data repositories and business applications,and those of a firm’s partner have the potential to allow faster productdevelopment and distribution with higher product quality. It is claimed thatengineering change orders will update the bill of materials database which feedscustomer configuration and manufacturing systems. These systems,theoretically, will be shared with key suppliers in real-time, allowing co-ordinatedaction and faster time to volume. Enhanced customer satisfaction is likely toaccrue since customers have access through the Internet to independentlybrowse and price products, order and configure them, view shipment schedules,monitor delivery and receive copies of invoices.

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The potential system-wide gains in efficiency to be reaped when firms are linkedacross the automotive industry is substantial. Furthermore, significant reductionin costs associated with inventories, sales execution, procurement, anddistribution are expected. Achieving these efficiency gains is contingent on anumber of factors, however, such as: access to e-business systems and theneeded skills, a firm’s path dependencies, and firms willingness to open up theirinternal systems to suppliers and customers. The latter raises policy issues“concerning security and potential anti-competitive effects as firms integrate theiroperations more closely” (OECD 1999: 75-76).

The Internet has the potential to bring about substantial savings in inventorycarrying costs, primarily through forecasting demand more accurately. Eachstage of the automotive value-added chain, for example, holds considerableinventories. Ford, for example, has deployed an Intranet48 which connects 120000 workstations at offices and factories around the world. It is believed that theIntranet has contributed to “reducing the time needed to get new models into fullproduction from 36 to 24 months” (OECD 1999: 63). Plans are already afoot toextend the Internet system in order to significantly reduce inventories and fixedcosts. The ultimate objective is to tighten the supply chain, and manufacture ondemand.

While most of the evidence supporting e-business-enabled supply chainintegration is anecdotal, speculative and theoretical, hard empirical evidence,particularly from the US, is slowly beginning to surface. Pilot tests of an EDIsystem extended across the Internet to a large number of suppliers and OEMs bythe US Automotive Industry Automation Group (AIAG) and the ManufacturingAssembly Pilot (MAP) programme, would seem to support the merits of digitalsupply chain integration:

The pilot generated a 58 per cent reduction in lead times, a 24 per cent improvementin inventory levels, and a 75 per cent reduction in error rates. When deployed morewidely in 2000, it is expected to save the US automotive industry an estimated $1billion a year (OECD 1999: 63).

Improved demand forecasting and replenishment of stocks via the Internet isestimated to lead to a reduction in overall inventories of US$250-$350 billion, orabout a 20 to 25% reduction in current US inventory levels. While this estimateis probably optimistic, pilot studies on the US auto market obtained a 20%savings, and even a 5% reduction would have a significant economic impact(OECD 1999: 13-14).

48 Internet-based network for company-use only.

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BOX 5.2: The Potential Advantages Of E-Business For The Automotive Industry

• Improves supply chain management.

• Boosts revenues.

• Cuts production cycle times.

• Improves customer service.

• Broadens market share.

• Creates interactive relationships with customers and suppliers.

• Delivers new products and services faster and better. And at a lower cost.

• Improves market transparency.

• Improves communication between trading partners (i.e. inter-company relationships),and within the enterprise itself (i.e. intra-firm relationships).

• Allows businesses to move beyond exchanging orders into more complexcollaboration in design, fulfilment and co-ordination.

• Enormous cost savings are expected from areas such as standardisation andprocess efficiencies.

• Increased value is realised by collaboratively balancing all resources and optimisingthe flow of goods, services and information from source to end customer.

• Drives supply chain harmonisation.

• Allows closer synchronisation of the supply chain with the aim of reducing inventoryand shortening cycle times.

• Increases value with preferred suppliers.

• Online e-commerce allows for more efficient supply chain management by cuttingout layers of middlemen.

• Allows significant cumulative savings in procurement costs, both by making it easierto find the cheapest supplier and through efficiency gains. The transaction costs ofplacing an order online is much less than a phone and fax ordering system, andthere are likely to be fewer errors in orders and invoicing.

• Consolidates information on supplier performance.

• Cuts inventory requirements. Information networking reduces the need for firms tokeep large stocks.

• Improves planning certainty.

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Because the Internet is a new technology in business, there is a lack of reliableempirical evidence (especially statistical data) to either confidently support orreject the benefits listed in Box 5.2. The advantages of the Internet will need tostand up to rigorous empirical tests, which are contingent on the availability ofreliable statistical data. The essence of Box 5.2 can be distilled into the followingkey benefits of the Internet:

• the payoff in productivity

• speed

• lower cycle times

• supply chain integration

• better planning

• reductions in inventories

• more efficient logistics

• more efficient and effective customer service

• lower purchasing, sales and marketing costs

• new sales opportunities

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5.4 The Importance Of Supply Chain Integration

John Dobbs of Cambridge Technology Partners defines value chain integrationas “a process of collaboration that optimises all internal and external activitiesinvolved in delivering greater perceived value to the ultimate customer” (TheEconomist, 26 June 1999). One of the hallmarks of successful e-business isintegration of the value chain. Supply chain integration is generally regarded asan indispensable element for success in manufacturing, and it is believed thatsupply chain superiority will provide a decisive competitive advantage.Manufacturers now realise that they must bring more to the table than merelyimproved processes. They must adapt quickly to increasingly unpredictableshifts in market demand, achieving greater efficiencies in product development,sourcing, production and distribution. A company can only achieve this byinteracting closely with its suppliers, customers and business partners.

Supply chain integration works on the premise that no one firm can beinternationally competitive when its customers and suppliers are not.Organisations are moving away from competing as independent businesses tocompeting with their supply chain against other supply chains. E-business andsupply chain management are all about using Internet technologies to increasethe efficiency of entire value chains by co-ordinating the actions and strategies ofall parties involved. Automotive firms that exploit network-enabled supply chainmanagement will be able to be far more responsive to their customers, suppliersand market conditions, as well as lower the cost of goods and transactions rightacross the chain, from the primary supplier through to the end-user. The uptakeof this is that firms jointly manage inventories across the supply chain, forecastsales together, and plan collaboratively to keep levels of component andcompleted product inventory down to a bare minimum.

Paul Bell, a senior executive at Dell Computer, describes inventory as “thephysical embodiment of bad information” (The Economist, 11-17 November 2000,italics added). Lee Price, Chief Economist in the US Commerce Department’sOffice of Policy Development, describes inventories as “A substitute forinformation: you buy them because you are not sure of the reliability of yoursupplier or the demand from your customer” (The Economist, 11-17 November2000, italics added). Similarly, McGuffog (1999: 1) argues that inventory, excesscapacity, waste, write-offs and stock-outs are the key consequences ofinformation-related uncertainties. The ideal situation is when the only inventorythat exists is in transit. The objective of supply chain management, then, is to“improve the total performance and cost-effectiveness of an organisation byoptimising speed and certainty and maximising the net value added by all relevantprocesses” (McGuffog 1999: 1, italics added).

Dell Computer’s Internet-enabled build-to-order business model known as directsales49 could serve as a template for a new organisational model in the Internet 49 Retailers are bypassed altogether.

44

Age (see Magretta 1998). This is a radical example of a “pull” strategy in supplychain management, where Dell has largely eliminated the non-value added stepsin its supply chain. However, it needs to be borne in mind that Dell is a one-product company which has about 200 suppliers, with 30 companies contributingto about three quarters of its total purchasing.

Dell, which offers over ten million computer configurations on its website, usesthe Internet to “virtually integrate” the value chain in order to leveragerelationships with both customers and suppliers. Dell is sharing information withits suppliers in a real-time fashion. Simultaneously, information from Dell’scustomers flows all the way through manufacturing to Dell’s suppliers (Magretta1998: 79). These tightly co-ordinated information linkages would not be possiblewithout customers and suppliers working with Dell as partners. According toMichael Dell, “We sometimes know more about a customer’s operations thanthey do themselves” (Magretta 1998: 79). Dell’s computer sales increasedsubstantially from 1996 (US$ 5.3 billion) to 1998 (US$ 12.3 billion), and by 2000it reached a staggering US$ 25.3 billion (Gereffi 2000: 9). Internet sales accountfor about 50% of the company’s transactions. The success of Dell’s build-to-order model represents a challenge to current build-to-stock business platformsin the automotive sector.50

The performance of an enterprise depends heavily on its ability to respond withspeed and certainty to the challenges and opportunities that are presented by itssuppliers, competitors and customers. In their survey of 225 international51

companies representing a wide range of industry groups52, Handfield et al. (1999:71) discuss a number of company objectives for supplier integration. Accordingto Handfield et al. (1999: 71) the most important objectives that emerged are:

• Reduce design or development time

• Reduce procured item cost

• Improved procured item quality

• Reduce design and development cost

• Access and improve product technology 50 Our point is not to elevate Dell Computer as a model for the automotive industry, but rather to illustratethe power of an Internet-based assembler/production system. Cisco Systems, is another company whichhas reengineered its business to take advantage of the productivity improvements made possible by theInternet. Cisco Systems, an IT solutions company, uses the Internet to receive orders; deal with customer-service issues; recruit and screen job applicants; virtually integrate its financial systems into the businessprocesses; improve its manufacturing processes; and outsource most of its production (Reinhardt 1999).Through networked IT applications, Cisco connects chip manufacturers, logistics companies, employees,systems integrators, and customers. The Virtual Close Internet Business Application, an Intranet-basedanalysis system, enables Cisco to digitally scrutinise any aspect of its business world-wide. In 1995, Ciscotook 15 days to close its books, now it can be completed within the hour.51 Asia, Australia, Canada, South America, US and Western Europe.52 Including: aerospace; automotive; chemicals; computers and electronics; consumer products; industrialequipment; medical products and services; process industries; telecommunications; and governmentservices.

45

• Develop a long term supplier relationship

• Improve product features

• More effectively use human resources at the respondent’s business unitand at the supplier

• Improve customer service

• Reduce technological risk

• Reduce financial risk

• Access and improve process technology

• Improve respondent’s business unit’s position as a preferred customer tothe supplier

• Comply with environmental regulations

• Comply with other government regulations

All of the respondents agreed that supply chain integration had a positive impacton the aforementioned objectives. The Handfield et al. (1999) study is importantbecause it underscores the paramount importance of the strategic factors thatare driving supply chain integration in the automotive and other manufacturingsectors.

E-business has the potential to redefine traditional value chains, and developcomplex knowledge-sharing systems that connect pricing, product and designinformation with suppliers and customers. The new IT has the potential to co-ordinate across company boundaries to achieve new levels of efficiency andproductivity. It offers the possible advantages of a tightly co-ordinated supplychain that has traditionally come through vertical integration. An e-business-enabled supply chain puts in place an open network infrastructure andstandards-based technologies that could facilitate communication, collaborationand the sharing of knowledge with customers, employees, partners andsuppliers. Partners should be treated as if they are inside the company. Thesupply chain becomes more competitive as a result of lowered total system costsand improved responsiveness to unplanned events such as a change incompetitor’s prices, the potential loss of a valued customer or supplier, or a newmarket opportunity.

Let us look briefly at the comparative inventory performance of Eastern Cape andKZN club members against their international counterparts. This comparison isbased on close benchmarking of like-for-like component manufacturers.Inventory performance is a value chain issue par excellence. Inventory levelmeasurements provide a rough proxy for the level of integration in the supplychain. The key inventory control measures considered are:

• Total inventory levels

• Raw material inventory levels

46

• Work in progress levels

• Finished goods inventory levels

The objective is to present an outline of the variance in inventory performanceamongst club members and their international comparators. Figure 5.2 clearlyshows that whilst improvements in number of days of total inventory have beensignificant, the general performance of club members is still well below what isrequired for international competitiveness. The figures suggest that whilst rawmaterial (Figure 5.3) and work in progress (Figure 5.4) levels have on averageimproved significantly, finished goods inventory holding (Figure 5.5) hassignificantly deteriorated at many club members. This, however, is in mostcases, reflective of an increase in exporting growth rather than actualperformance deterioration per se, i.e. many club members are holding on toincreased finished goods stock because of monthly or bi-weekly shippingschedules to foreign customers.

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FIGURE 5.2

Number of days of total inventory: Club members versus International counterparts(1995 to 1999)

0

10

20

30

40

50

60

70

80

Y e a r

Day

s

C lub members (n=12) 58.88 66.77 66.08 61.29 52.00

International firms (n=12) 46.84 40.02 40.90 39.01 35.05

1995 1996 1997 1998 1999

Source: IRP Benchmarking Data.

FIGURE 5.3

R a w m a t e r i a l i n v e n t o r y h o l d i n g : C l u b m e m b e r s v e r s u s I n t e r n a t i o n a l c o u n t e r p a r t s( 1 9 9 5 t o 1 9 9 9 )

0

5

1 0

1 5

2 0

2 5

3 0

3 5

4 0

4 5

Y e a r

Day

s

C l u b m e m b e r s ( n = 1 2 ) 3 4 . 4 9 3 9 . 4 4 3 9 . 5 9 3 1 . 1 6 2 6 . 9 4

I n t e r n a t i o n a l f i r m s ( n = 1 2 ) 2 3 . 6 5 2 5 . 6 1 2 2 . 3 2 2 0 . 7 6 1 8 . 0 7

1 9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9

Source: IRP Benchmarking Data.

48

FIGURE 5.4

Work in progress levels: Club members versus Internat ional counterparts(1995 to 1999)

0

2

4

6

8

10

12

14

16

Year

Day

s

C lub members (n=12) 14 .63 14 .51 12 .23 11 .27 8.93

International firms (n=12) 7.40 6.63 6.88 6.20 5.34

1995 1996 1997 1998 1999

Source IRP Benchmarking Data.

FIGURE 5.5

F i n i s h e d g o o d s i n v e n t o r y h o l d i n g : C l u b m e m b e r s v e r s u s I n t e r n a t i o n a l c o u n t e r p a r t s( 1 9 9 5 t o 1 9 9 9 )

0

2

4

6

8

1 0

1 2

1 4

1 6

1 8

2 0

Y e a r

Day

s

C l u b m e m b e r s ( n = 1 2 ) 9 . 7 7 1 2 . 8 2 1 4 . 2 7 1 8 . 8 7 1 6 . 1 4

I n t e r n a t i o n a l f i r m s ( n = 1 2 ) 1 2 . 8 1 1 2 . 1 6 1 1 . 7 0 1 2 . 0 5 1 1 . 6 4

1 9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9

Source: IRP Benchmarking Data.

49

Nonetheless, Figures 5.2 to 5.5 above clearly show that club members have asupply chain problem, in that they lag their international counterparts, as itpertains to inventory performance. The operational competitiveness of clubmembers is being constrained by poor inventory performance. E-business offersclub members the possibility of closer synchronisation of the supply chain with theaim of reducing inventory and shortening cycle times. For example, real-timeinformation networking potentially cuts inventory requirements, by reducing theneed for firms to keep large stocks.

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5.5 Potential Impact Of The Internet On The Value Chain

The traditional value chain is seen in terms of a series of arms-length, value-adding links from raw materials to end-customer (see Figure 5.6). In otherwords, the traditional value chain consists of a sequence of activities with clearlydemarcated points of input and output. This value chain model (i.e. Figure 5.6)deals with information as a supporting part of the value-adding process, and notas a source of value itself. Contrast this with the virtual value chain (i.e. Figures5.7, 5.8 and 5.9) where the value-adding steps are performed through and withinformation.

The Internet-enabled virtual value chain, on the other hand, is non-linear (seeFigures 5.7 and 5.8). Rayport and Sviokla (1994, 1995) argue that firms todaycompete in both the physical world of goods (the marketplace) and the virtual worldof information (the marketspace). To quote Rayport and Sviokla (1995: 83), thevirtual value chain consists of “a matrix of potential inputs and outputs that canbe accessed and distributed through a wide variety of channels”. With the virtualvalue chain, information can be captured in real-time at all stages of the valuechain, and can be analysed electronically to improve performance at each stageof the value chain, and co-ordinate across it. In a value chain that is completelynetworked, the Internet connects every node in the value chain (i.e. the “pull”system becomes operational) (see Figure 5.7).

Gereffi (2000: 2) argues that:

The new digital era of globalization is characterized by an explosion inconnectivity that is melting the informational glue that holds corporate valuechains and global value chains together.

With virtual integration, the links are no longer stand-alone, rather there is aproliferation of strategic, information-defined inter-relationships between thevarious players in the value chain (see Figure 5.9). Cross-enterprise virtualintegration blurs the traditional boundaries and roles of the players in the valuechain (see Figure 5.9). The linkages between firms tend to become fluid;interactive; pervasive; customised; spontaneous; and potentially mutuallybeneficial. Further, the digital, electronic links enable the firm to become moreflexible and responsive to change. The virtual value chain should be seen as anintegrated system (see Figure 5.8) rather than as “a set of discrete thoughrelated activities” (see Figure 5.6) (Rayport and Sviokla 1995: 78). Firms use theInternet to integrate the value-added chain which can extend from the supplier ofraw materials to the final consumer (Figure 5.8).

Figure 5.8 shows how the integrated IT systems in place provides firms with theability to visualise their value chains from end-to-end, i.e. as an integrated whole.The firm can add real value by focusing on what it does best and thencollaborating with other firms involved in the overall supply chain. The Internet

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facilitates collaboration both within and between firms by dynamically sharinginformation in real-time (see Figure 5.9). Figure 5.9 illustrates how the Internetenables the networked or virtual organisation to connect, dynamically in real-time, the supply and demand side of the company. The Internet creates thepossibility for firms to communicate, transact and collaborate with enhancedflexibility, and at a lower cost. The firm focuses on its distinctive capabilities, andthen forms strategic alliances with other firms in the overall value chain.According to Brown (1996: 251):

Part of the reason for stronger buyer-supplier relationships has been theincreasing concentration of the firm on what it does best, rather than beingresponsible for all activities in the supply chain.

Increased dependence upon suppliers thus becomes a requirement of the firm,and has a major impact on the buyer-supplier relationship. For example, in theautomotive industry, the buyer-supplier relationship which has traditionally beenadversarial is now moving towards a closer collaborative relationship, as adefence against the complexity and uncertainty of markets (see Section 2.1).

FIGURE 5.6: A Simple Physical Value Chain

Physical Value-Adding Stages

Design ProductionRaw Materials,

Inbound Logistics,Transforming

Inputs,Packaging,

etc.

OutboundLogistics,

Marketing,&

Sales

Consumption&

Recycling

Linear rather than Interactive

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FIGURE 5.7: A Simple Internet-Enabled Value Chain

The “Internetworked Business”: Virtual Integration Through Internet Connectivity

Design ProductionRaw Materials,

Inbound Logistics,Transforming Inputs,

Packaging,etc.

OutboundLogistics,

Marketing,&

Sales

Consumption&

Recycling

Seamless, Digital Information Flow Through an Ever-Changing Open Network

FIGURE 5.8: An Integrated Value Chain

Raw EndMaterials Consumer

Web-based IT Integration of the upstream and downstream businesses

High-Capacity Networking Capabilities

Flexible, Interactive Links ~ The Internet is Blurring the Boundaries in the Value Chain

Overlap indicates flexible, responsive digital links between thevalue-adding stages

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FIGURE 5.9: A Virtual Value Chain

Virtual Integration: Seamless, Internet-Enabled Information Flows

Business-to-Business(B2B) Supply Chain Links

• Supply chain management

• E-procurement

• Stock management

• Integrated forecasting

• Quality systems management

• Extension of a firm’s Intranetto suppliers (i.e. deploymentof an Extranet)53

• Etc.

Business-to-Employee(B2E) Information Links

• Deployment of an Intranet(i.e. a network internal to thefirm that uses thetransmission controlprotocol/Internet protocol[TCP/IP]) which streamlinethe firm’s internal businessfunctions, and connectsworkstations (includingremote employees)

• Web-based Internal businessprocesses

• Internet-connected front-office systems and processes

• Internet-connected back-office systems and processes

• Cross-functional orientation

• Etc.

Business-to-Customer(B2C) Communication

Links

• E-commerce (i.e. e-sales)

• Customer service

• Customer relationshipmanagement

• Interactive marketing

• Demand forecasting

• Orders management

• Extension of a firm’sIntranet to customers (i.e.deployment of anExtranet)

• Etc.

Suppliers Inter-Firm Collaboration and Networking Customers

Virtual Extended Enterprise (Extranet)

53 Internet-based networks for use by a company and its business partners.

The Diffusion of InformationWithin the Firm ~ Intra-Firm

Collaboration (Intranet)

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5.6 The South African Context

South Africa’s automotive component industry has had to struggle to survivesince it lost the protection of the previous regime’s local content tariff barriers.The new internationally competitive business environment of trade liberalisationand globalisation has had a profound impact on the domestic automotiveindustry. In addition, the South African automotive industry has been hugelyinfluenced by the profound changes taking place in the global OEM and OESmarket (see Section 2). This is due largely to the rapid reintegration of theindustry into the world automotive arena after a lengthy period of trade isolationand government protection.

Discussions with key informants crystallised around the need for value chainparticipants to adjust their IT plans to align them with each other. The industryexperts’ expectations for the future are that supply chain integration will becomeeven more important in South Africa. They see e-business as the leading-edgeof a trend that will rapidly diffuse through the South African automotive industry.The key informants emphasised the need for the automotive sector to commititself to e-business and to build strong relationships with their trading partnersbased on state-of-the-art IT links. They believed that the informational mode ofassembler-supplier relationships will confer a substantial competitive advantageto the South African automotive industry. The potential of the Internet tostreamline supply chains, open new revenue streams, process orders moreeffectively, increase efficiencies and improve stock management was alsomentioned. The onus is on the OEMs and component manufacturers to acquaintthemselves with the expertise; procedures; processes and systems of their focalsuppliers in order to improve communication; reduce errors; reduce concept-to-customer development time; and understand capabilities (see Section 2.1).

Some component manufacturers are adopting a strategy of partnering withoverseas leading-edge technology providers in order to compete for contracts.Also, many South African component manufacturers are now actively seekinginternational markets for their products. The repositioning of the componentmanufacturers has been encouraged in no small degree by the government’simport rebate credit facility. This development underscores the importance ofestablishing reliable, scalable and secure domestic and international digitalcommunication links.

E-business has descended on the business world with a flurry of buzzwords andhype, but with little demonstrable action in the South African automotive industry.To reiterate, e-business in the automotive sector is being driven largely by threeof the world’s largest automakers, viz. Ford, General Motors andDaimlerChrysler. It is these companies which have taken the lead in adoptinginnovative applications of network-based IT which are at the cutting-edge of e-business. Although, the South African automotive sector is at a higher stage ofe-business development than many other sectors (such as furniture, textiles,

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etc.), it still has a long way to go before it catches up with the North American(i.e. Ford and GM) and German (i.e. DaimlerChrysler) automakers who areglobal e-business leaders with high levels of IT penetration.

South African company directors are only beginning to realise the significance ofe-business. Many still have a shallow understanding of the Internetphenomenon. The automotive industry in South Africa has greeted the e-business “revolution” with muted enthusiasm rather than apprehension. But oncethe major vehicle assemblers implement a cohesive, coherent e-businessregime, a ripple effect is likely to take place down the value stream.

The number and variety of revenue projections for inter-business e-commerceare overwhelming. B2B e-commerce forecasting is done, for the most part, bymarket research firms who tend to use divergent definitions (of e-commerce) andmethodologies. For illustrative purposes, we will quote one reliable source. Theresearch firm, Acuity Media Africa reports that B2B trading in South Africa hasincreased from a diffident R15 million in 1997 to R207 million in 1998, and asubstantial R3.9 billion in 1999 (Business Day, 19 October 2000). This figure,however, applies to all industries in South Africa, not just the automotive industry.But, it nevertheless, flags the growing significance of B2B e-commerce in SouthAfrica, and potentially the automotive industry.

In line with global trends (see Sections 2.3 and 2.4), B2B e-commerceprocurement hubs have been planned or are in operation in South Africa. Forexample, Andersen Consulting and Impress Software are planning an automotivee-marketplace to provide a common trading and communication platform for theSouth African automotive industry (www.cartoday.com). Moreover,SparesNet.com, a South African venture is already trading on the Internet. Alsothere has recently been a move towards e-commerce on the retail side, forexample, the McCarthy dealership is already trading on the Internet. The e-marketplaces share one basic aim: to create an integrated supply chain for theautomotive industry.

The question that arises is: Has e-business achieved a critical mass in the SouthAfrican automotive industry, or is it still in its formative phase? Furthermore, hasthe pace of change been more incremental and cautious or has it been meteoric?The answers to these questions are revealed in the survey findings presented infull in Section 11 of this report, and the key findings, of which, are summarised inSection 6 below.

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6. Summary Of Key Findings

In this section of the report the key findings of the e-business survey aresummarised. The intention here is not to overwhelm the reader with a longempirical section, but rather to enable the reader to grasp the important issues ina succinct manner. Section 11 of this report provides an unabridged version ofthe empirical aspects of the study for the benefit of the reader who wants to delvedeeper into the research findings.

A substantial 66.7% of club members have some sort of e-business strategy inplace. This is quite high considering the newness of the technology in thedeveloping world. It appears, however, that most of the enterprises are not yetable to fully and coherently define their tactical and strategic e-business needsand objectives. This largely underscores the majority of club members’confusion about e-business and its relevance to business strategy.

Only 33.3% of club members explicitly reported e-business technology goals.Most of the club members had no concrete plans to adopt e-business-enabledsupply chain management in their enterprises, although supply chain issues wereimplicitly articulated in some cases. There was no mention, for instance, ofestablishing an integrated web-based IT architecture to integrate front and backoffice systems for the purpose of optimising supply chains.

Many club members are still using the first wave of e-business technologies54,such as Electronic Data Interchange (EDI) (73.3%), Material RequirementsPlanning (MRP) (66.7%), and Manufacturing Resource Planning (MRPII) (40%);all of which have reached an inflection point. The new generation of corporate ITapplications, viz. E-Commerce (0%), Customer Relationship Management (CRM)(6.7%), and Supply Chain Management (SCM) (13.3%) have not made a bigimpact on club members. Only 13.3% of club members are presently usingEnterprise Application Integration (EAI) tools, and none of them are currentlyusing, or even plan to use, eXtensible mark-up language (XML)55 to integrate ITapplications across and between value chains.

Although all club member have access to the Internet, none of them where usingthe Internet for supply chain integration. The fact that club members connectwith the Internet, however, does not imply that Internet use is extensive. Also,the number of employees within the firms who have access to the Internet isquite small. Only, three firms are currently using an Intranet, and one clubmember reported that it has an Extranet in place. None of the firms haveadopted e-commerce applications, viz. Internet application development tools,

54 See the glossary of IT terms in Box 3, Section 11.3.55 XML is an open Internet protocol and coding standard enabling documents and data to be served,received and posted over the Internet.

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supplier-facing platforms, portals, trading exchanges, customer-facing platformsand commerce servers.

Most of the club members are at the stage of basic online “brochureware”.Companies have developed static information on a website, with minimal abilityfor any interaction beyond email, company background, and in a limited numberof cases, the placing of orders. It would appear as if too much emphasis is beingplaced on establishing a web presence and too little stress is placed on ensuringthat the IT infrastructure is able to support online procurement, trading, marketingand customer sales. None of the club members have a fully integrated e-business where the customer-facing front-end of its website is effectivelyintegrated with back-end systems linked to key suppliers and third parties.Internet use is confined mainly for marketing and lead generation rather than forbusiness transactions. Respondents cited inadequate systems integration and thelack of standards for sharing B2B e-commerce data as the main barriers toautomated order entry.

Club members make use of e-business tools principally for communication(100%); order processing (86.7%); design (80%); engineering and technical(80%); inventory management (80%); production (80%); logistics (73.3%);marketing (60%); and sales (60%). Limited use of e-business technology wasalso reported for procurement (46.7%); application integration (40%); servicesand support (40%); management of distribution channels (33.3%); and research(33.3%).

Club members identified globalisation (73.3%); customer requirements (73.3%);closer integration with suppliers (73.3%); business flexibility (53.3%); agility(53.4%); increased competitiveness (66.7%); connectivity (66.7%); and “other”(86.7%) as being the key drivers impelling firms in the automotive sector to adopte-business technologies. The “other” key drivers include: links with overseastechnology partners; joint ventures; closer integration with customers; marketexpansion; customer retention; improved efficiencies; customer informationexchange; supplier information exchange; fostering innovation; acceleratedspeed to market; increasing market share; and an accentuated need tostreamline business processes. Furthermore, a number of “second-gear” driverswere also mentioned by the respondents, viz. spread of the Internet (46.7%);standards (40%); trade liberalisation (33.3%); and consolidation in theautomotive industry (20%).

The perception data yielded mixed responses as far as the club members’commitment to e-business is concerned. The main reason for this is that a largepercentage of club members’ understanding of e-business is still somewhatfuzzy. A significant 80% of club members believed they will become moredependent on e-business in the next few years. Further, 66.6% of club membersfelt that building Internet capacity is a high priority for their companies. Yet, only33.3% of club members believe that companies in the automotive sector whoshun e-business are likely to lose market share. Only 46.7% of respondents

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believe that e-corporations constitute a strong competitive threat to their owncompanies if they do not become e-business literate themselves. The majority ofclub members (66.7%) recognise the risk of intermediaries in B2B trade, and ofonline procurement networks, to their companies, if they do not possess therequisite Internet savvy. It appears as if a significant proportion of club members(60%) do not fully understand the subtle distinction between e-business and e-commerce. Moreover, only 46.7% of club members understood that e-business isnot primarily about technology investment. The vast majority of club members(80%), though, were able to grasp a fundamental feature of e-business, namelythat it is primarily about collaboration and partnership between differentstakeholders.

Club members claimed that the new IT has changed the way in which theirenterprises transact business, especially in the following ways: the capacity andspeed of electronic digital communication; reliance on back-office software; thegrowth of network computing; computer-aided design; Internet use forinformation purposes; resource planning and releasing demand forecasts;greater connectivity to customers and suppliers; shift towards process-basedmanufacture and “pull” production; logistics; online procurement and sales;supply chain synchronisation; and customer requirements.

Only 33.3% of club members currently use e-business technology for supplychain functions. Most club members’ (93.3%) suppliers do not have access toreal-time information of club members’ sales and stock levels. The vast majorityof club members’ internal operations are not electronically integrated with that oftheir business partners (86.7%), suppliers (86.7%) or customers (80%). Only20% of club members possess the e-business capacity to access their suppliers’production capacity, available inventory, lead times and delivery flexibility. Athird of club members are still not using electronic technologies and infrastructureto connect their internal operations and processes through automation. Themajority of respondents stated that their internal operating systems [i.e.purchasing (86.7%); design (86.7%); production (86.7%); marketing (80%); andlogistics (80%)] are either not integrated or are marginally integrated with externalelectronic networks.

Only 26.7% of club members claimed to put pressure on their suppliers to makeuse of electronic communication links, particularly EDI. Further, the majority ofclub members (80%) are not yet using e-business tools for online purchasing,although 46.7% of respondents claimed that they engage in some form of onlineB2B selling. Only 6.7% of club members are involved in B2C selling. The littleB2B e-commerce which is taking place is occurring primarily through EDI-typenetworks, rather than through Internet-based systems.

Only 40% of club members outsource non-core functions to small/micro firmsand emerging black contractors. None of the club members, however, considerthe e-business capacity of small companies when they award outsourcingcontracts. This relates to the fact that only peripheral activities are outsourced.

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Also the chances of small and micro enterprises actually being web-based andengaging in B2B e-commerce are pretty low, more so, considering that the largefirms who are at the apex of the value chain are themselves only beginning tobecome aware of the potential of e-business.

Most of the club members (66.7%) claimed to be aware of Internet-based tradingnetworks in the automotive industry. Only 46.7% of club members are currentlylinked to one or more Internet-based procurement platforms. Club membersexpect that the biggest benefits of digital automotive parts exchanges are likely tobe: speedy transactions (66.7%); procurement cost savings (60%); the setting ofstandards (60%); value chain integration (46.7%); and quality improvements(46.7%). According to club members, the main drawbacks of an online tradinghub are likely to be: a rationalisation of the supplier base (73.3%), monopoly(66.7%) and privacy concerns (66.7%). For electronic marketplaces to succeedin the automotive industry, 93.3% of club members claimed that openness,transparency and trust must be the hallmarks of a successful procurementplatform.

For club members, the major benefits of adopting e-business tools for theircompanies include: reducing the cost of information (80%); “other” (80%); theshortening of inventory control (73.3%); order-ship-bill cycles (53.4%); supplierinformation exchange (46.7%); improvement in competitive position (46.7%);penetrating international markets (46.6%); and increasing market access(46.6%). The “other” benefits includes: lower costs; greater value; speedcombined with flexibility; and improved decision making and execution.

Club members mentioned a number of obstacles to e-business transformation.The main blockers are: low use of e-business by customers and suppliers(86.7%); more pressing corporate priorities (66.7%); security concerns (60%);lack of accepted standards (53.3%); lack of e-business skills (53.3%); seniorexecutives who do not support IT (53.3%); and uncertainty over the returns whiche-business will deliver (53.3%).

Club members are currently extracting the most value from e-business tools inthe following areas: design (73.3%); operations and logistics (66.7%); managingcustomer relationships (60%); and production systems (53.4%). Supply chainissues like outsourcing (33.4%), collaboration and partnerships (26.6%),interaction with suppliers (20%), and value chain integration (20%) have notrecorded high degrees of positive impact. This is mainly because firms are notusing e-business tools for supply chain applications.

Only 33.4% of club members consider the adoption of e-business in theircompanies as a “success”. A substantial 60% of club members experienced amixed outcome, the implementation of e-business in their enterprises can only bedescribed as “partially successful”. While this is an interesting observation, wecannot read too much into it, considering the incipient and incomplete nature of

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e-business adoption in the two clubs. Moreover, it is only over time that moremeaningful assessments of the success of e-business can be made, usingappropriate, and precise measurement techniques.

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7. Conclusions

This report has focused on the emergence of e-business in the automotiveindustry, the promise it contains, and some of the challenges it poses. With allthe current focus on the Internet in the popular press and academic publications,it is sometimes easy to forget that e-business is still in its infancy. Businessmedia headlines, for instance, seem to suggest that the entire global automotiveindustry is rushing headlong for e-business technologies, especially the Internetto “reinvent” their corporations. However, it is important to keep in mind thatdespite how quickly e-business has changed the North American automotiveindustry landscape, it is still a new paradigm in developing countries, and indeedeven in most highly industrialised countries.56

It seems as if the Internet is not yet a strategic priority among club members.There does not appear to be a sense of urgency to apply the Internet to theirbusinesses. This is symptomatic of club members general lack of awareness ofInternet-based business opportunities and, by implication, the creation ofeconomic value in the Internet Economy. In other words, most club members donot yet have a clear understanding of the contribution that the new IT might bringto the firm, and how it might support the firm in the market. Such complacencycan be highly perilous, especially since business history is replete with examplesof companies that failed to transform their businesses in the light of atechnological revolution (see Thurow 1999).

The Internet has been hailed as a cornerstone of the ICT revolution, and isexpected to redefine supply chain management. It has frequently been arguedthat the Internet forms the backbone of e-business infrastructure – to access,analyse, report and share information in a complete web-enabled environment.But this is an ideal-type situation, at best a long-term view in a developingcountry like South Africa. It was, therefore, not surprising to find that none of theclub members are operating a fully web-based architecture which is hooked intoa common information system. It may well be argued that there are probablyvery few, if any, developing country manufacturing companies which are fullyInternet-aligned à la Dell Computer. The Internet is currently being usedprimarily for marketing, email and information searches, rather than for transactingbusiness between enterprises. We expect this situation to change over the next fewyears as the Internet begins to take root in the IT consciousness of the firm, andas the lead firms in the value chain begin to set e-business standards.

Club members are primarily using their websites as online brochures. TheInternet is not being used to sell products, provide customer support or reduceoperating costs. As a result, club members may be missing potentially importantInternet-related opportunities for expanding market access, cutting costs,increasing productivity, and strengthening relationships with customers, suppliers

56 On the latter see Goldstein and O’Connor (2000).

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and business partners. By not making the transition to Internet-based business,club members may be placing themselves at risk of becoming less competitive inthe globally interconnected market, impacting on both their current marketpositions and long-term viability. Moreover, as automotive MNCs integrate theInternet into their cross-border business operations, club members run the risk ofbeing excluded from global supply chains if they are unable to establishelectronic ties with the major players.

In the strict sense of the term, therefore, none of the club members in theirpresent incarnation can be described as virtual e-corporations. They are in theprocess of transforming their businesses, i.e. they are currently in a transitionalphase. But this is taking place from quite a low IT base. Therefore, the complextransformation process of creating a completely web-based, integrated IT systemis going to take a fairly long period of time; it is going to be incremental ratherthan supersonic; and it is likely to be a long learning curve for the firms inquestion. In sum, e-business technology has been slow to get going in the SouthAfrican automotive industry, but once it reaches a critical mass the technology islikely to spread faster.

B2B e-commerce has not yet taken off in the Eastern Cape and KZNBenchmarking Clubs. This is problematical because B2B e-commerce in theautomotive industry will vastly outstrip B2C e-commerce both in terms of volumeof business and the number of firms affected. Presently, club members are stilldiscovering how to do online procurement, logistics and administrative processesbetween firms, and how to deal electronically with their customers and suppliers.This is likely to be a complex and disruptive process, much harder than ITproselytisers would have us believe. Besides, it will take time for club membersto transform their internal and external structures to take full advantage of thepotential opened up by the Internet.

The fairly low percentages of e-trade suggest that B2B and B2C e-commerce area nascent market in the South African automotive industry. This is not altogethersurprising when one considers that only a third of American manufacturing firmsare using the Internet for procurement or sales; despite the fact that the US hasinvested more, and earlier, in the new IT than the other highly industrialisedeconomies (The Economist, 23-29 September 2000). A major reason for the slowstart in B2B trade is that club members need to have a robust and customised ITinfrastructure in place before they can engage fully in B2B trade. As alreadymentioned in other sections of the report, club members are still developingintegrated working IT systems. Finally, the spread of Internet connectivity, whichis a key driver of e-commerce internationally, does not appear to be a primedriver of e-business in the Benchmarking Clubs.

It would appear that club members are reluctant to grant their customers,suppliers and business partners full access to their databases and to the innerworkings of the firm. This reluctance to allow trading partners inside the

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“corporate machine” stems from the firm’s fear that its weaknesses will beexposed, and it also suggests a lack of a certain amount of trust between thetrading partners. The net effect of which is that virtual collaboration and a vision ofshared destiny between the trading partners are blocked.

We argue that e-business capacity is rapidly becoming a necessary condition forconnecting to demanding international markets, particularly OECD; participatingin B2B e-commerce and global trade networks; and upgrading in global valuechains. Club members who do not invest in e-business may face the likelihoodof not being able to compete against world-class firms.57 In other words, e-business is not a matter of choice, rather it is increasingly becoming a primarycompetitive differentiator. This is mainly because ICTs enhance the drive forcompetitive advantage in the new economy. How rapidly and effectively EasternCape and KZN automotive firms embrace the new IT will affect their viability inthe global economy. E-business competence signals to potential customers thatthe automotive firm in question possesses a certain level of IT and commercialsophistication. Thus differentiating the e-corporation from competitors who arenot as Internet savvy. In other words, the e-corporation gains a competitive edgeover its rivals who are not as adept in e-business, when linking into B2B supplychains.

E-business offers club members a choice between the high road to informationalproductivity or the low road to economic competitiveness through price competition andtight margins.58 In the New Economy, value migrates (or accretes) to the thingsthat are not commoditised, such as relationships with customers and suppliers,and the ability to aggregate customers across the globe – the very issues thatare central to e-business and supply chain management. The upshot is clear:value-added is dominated by information manipulation. In other words,comparative advantage lies with the application and control of knowledge ratherthan on cost advantage.

We have already noted that e-business has the potential to make the companymore responsive, more efficient and more competitive throughout all areas, frompurchasing to sales. E-corporations forge alliances not only to bridge capabilitiesand geographic gaps, but also to create new value and outsource uncompetitiveservices. How automotive component manufacturers and vehicle assemblersuse the new IT will increasingly separate the winners from the losers, i.e. a“digital divide” is likely to emerge between companies. The “divide” may possiblytake the form of a continuum (rather than a dichotomy), in which enterprises mayfall somewhere between two extreme points, viz. Techno-elites or Neo-Luddites.The companies that make the IT adjustment to effectively and imaginativelydeliver an integrated architecture that will support dynamic-data sharing amongdiverse software applications and among trading partners world-wide, stand to

57 Of course, investment in e-business will not, in and of itself, guarantee competitiveness. There is still thequestion of mastering the skills, Internet-based business models, organisational changes, etc.58 In development parlance, the latter trajectory is likely to lead to “a race to the bottom”.

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emerge at the forefront in the Networked Economy. On this issue, firms woulddo well to follow King Canute 59 in recognising the futility of trying to resist the tide,and instead seek out ways to harness e-business to their advantage.

While it is true that several of the automotive component manufacturers surveyedcan be described as IT laggards, most firms appear to be clustered in theintermediate stage of IT development. At present, there is no one firm which canbe described as a true IT leader. Nor is there any significant difference in e-business capacity between the two Benchmarking Clubs, and between the OEMsand the component manufacturers. Until sufficient numbers of their maincustomers and suppliers participate in e-business initiatives, there is littleincentive for individual firms to become engaged in e-business themselves.60

This notwithstanding, we believe that the catalyst to ignite B2B e-business in theSouth African automotive industry will come as the assemblers and the 1st tiersuppliers take the lead in implementing IT systems that their suppliers will haveto integrate with in order to trade. Another factor that could possibly increase theuptake of e-business is that of a defensive reaction by club members tocompetitors who are successfully exploiting the benefits of e-business, especiallythe potential for value creation and cost control.

Issues like connectivity, inclusivity and synergy do not appear to be definingfeatures of electronic communication among club members. This is because theinteroperability of e-business applications and their extensibility to other ITdevices, applications and technology is not assured. Tight integration required tomake better decisions faster, and to efficiently and effectively close the loop andexecute across the extended enterprise, is lacking. There appears to be atension in the mindset of the firm. On the one hand management espousesaspirations of an outwardly-oriented globally competitive enterprise, influenced inno small part by the government’s Motor Industry Development Programme(MIDP). Yet, paradoxically, firms’ IT ethos tends to be insular. The latter result isa cause for concern. Clearly, club members have not paid enough attention to ITtrends and may be overlooking a significant element of business performance.

To reiterate, e-business is about collaboration and partnership, something whichthe Eastern Cape and KZN Benchmarking Clubs are innately concerned with.However, the empirical evidence clearly reveals that club members have not yetformed electronic communities to:

• Integrate both internal and external business processes.

• Streamline and optimise their supply chains.

• Automate procurement through the Internet.

59 Danish king of England, 1017-35, who demonstrated to fawning courtiers his inability to stop the risingtide. Thus demonstrating the limited powers of human beings, even if they be kings.60 Achieving a return on e-business investment in a small market with a limited number of online customersand suppliers is difficult.

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• Seamlessly integrate their partners, suppliers and customers into theironline operations. As a result, they are unable to capture, analyse andexchange real-time information with the different stakeholders in order tomake better, more informed business decisions.

The long-term growth and prosperity of the South African automotive industry isinextricably linked to its ability to first gain entrance into, and then consolidate itspresence in, global supply chains. E-business competence is increasinglybecoming a prerequisite for membership of international supply chains.International companies are unlikely to source from South African companieswho are not e-business literate, unless such companies can offer othersignificant cost advantages to balance out the cost reductions that come from e-business. This is highly unlikely because the pressure on prices is already quitesevere, and any more tight squeezes, we believe, can seriously harm the growthtrajectory of the South African automotive industry.

E-business is becoming increasingly important for developing countrycompanies, including South African firms. It is likely to be the new locus of valuecreation in the information-defined arena of the global economy. Moreover, e-business influences how economic value is created and extracted in the InformationEconomy. Given the rapid pace of technological change and the advantages ofbeing an early market participant, developing country firms that defer e-businessinvestments will find themselves far behind the market leaders. As Kaplan(1986: 92) warns with a lesson from business history:

The companies that in the mid-1970s invested in automatic and electronicallycontrolled machine tools were well positioned to exploit the microprocessor-based revolution in capabilities – much higher performance at much lower cost –that hit during the early 1980s. Because operators, maintenance personnel, andprocess engineers were already comfortable with electronic technology, it wasrelatively simple to retrofit existing machines with powerful microelectronics.Companies that had earlier deferred investment in electronically controlledmachines fell behind: they had acquired no option on these new processtechnologies.

Many developing country companies, including South African, are currentlystriving to raise their international competitiveness; connect and deepen their links toglobal markets and trade networks; upgrade their position within global, national, andlocal value chains; restructure their operations in order to become world-classmanufacturers; progressively capture and harness upstream, high value-added activities;and to chart a more knowledge-intensive industrial development trajectory. All this ishappening in the midst of an ICT revolution propelled by digital processing. Itseems as if Third World companies will need to strategically adopt and integratethose aspects of the new IT into their firms, which are increasingly becomingnecessary to compete successfully in today’s global economy.

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ICTs are enhancing the drive towards globalisation, and are polarising thebusiness world into those companies which are tightly connected, and those onthe periphery of the global economy which are either not connected or areloosely connected – essentially a form of “technological apartheid” is beginning totake shape. Although the financial costs of joining the global informationeconomy are likely to be high, the economic costs of not joining are likely to bemuch greater. The new Internet-based IT represents a major opportunity fordeveloping country companies that can access and use it effectively, and a threatto those companies that cannot.

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8. Recommendations

During the period of the IDRC funded e-business survey in the Eastern Cape andKZN, we found that most Benchmarking Club members were in the initial phaseof reconfiguring and upgrading their IT infrastructure to prepare the foundation onwhich to build an e-corporation. Throwing money at IT, however, just for thesake of e-business is deeply problematical. It is essential, therefore, that clubmembers have a thorough understanding of the new Internet-based IT,especially how it can be used in supply chain integration; for upgrading withinglobal, national and local value chains; for pursuing value-added activities; andlooking for and exploiting value shifts in the market.

Club members also need to ensure that they have the support skills andcapabilities necessary for using the new IT. Extensive international experiencehas shown that new organisational techniques and changes in the firms’ relationshipwithin its “productive chain” (i.e. with both customers and suppliers) are anecessary precursor to the productive utilisation of IT in the automotive industry(see Hoffman and Kaplinsky 1988; and Womack et al. 1990). Furthermore, clubmembers should be particularly cautious about IT suppliers who proselytiseabout the new IT, without necessarily being experts in its application. Otherwise,IT will merely be an expensive excursion up a blind alley.

Building local B2B trading communities that will allow South African automotiveenterprises to transact online with their local suppliers and customers appears tobe a priority. There is a need to establish a common trading standard, so thatsuppliers do not have to build many interfaces. For example, club members willneed to define common standards for information like point-of-sale and inventorydata so that each company can interpret the other’s material. If, however, at anyplace in the supply chain there is a collapse or “break” in the electronic interface,then the potential advantages of e-business (see Section 5.3) are dissolved.This is why the building of robust electronic trading communities in South Africais crucial.

A regulated telecommunications environment, such as South Africa’s, is ablocker to e-business success. For example, the monthly rates for a 64K leasedline in South Africa is ten times the cost of the US (Business Report, 28 November2000). Further, Telkom’s public telecommunication networks are based largelyon the traditional circuit-switched and time-division multiplexing technologies,designed primarily to carry voice rather than rich multimedia content. Further,South Africa does not have the high-speed cable and ADSL (AsymmetricalDigital Subscriber Line) networks of the US. Telkom will need to make significantinvestments in optical technology such as dense, wave-division multiplexing inorder to increase its bandwidth and network speed. Otherwise, the growth of e-business in South Africa is likely to be impeded. Club members, in turn, will needto upgrade to wireless local area network (LAN) technologies. This is imperative

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since sales via e-commerce transactions will gain momentum over the next 2-3years, fuelled by the adoption of the wireless application protocol (WAP)61

standard as a global specification.

The public Internet does not always provide the reliability needed for businessesto run mission-critical applications. Many Internet Service Providers (ISPs) over-subscribe their facilities, making for unpredictable throughput. Transmissiondelays are often caused by sub-optimal routing, and end-to-end traffic delivery issubject to each intervening provider’s best-effort approach. The reliability of ISPsis also variable in South Africa. Moreover, local calls are not free. In addition,the network architecture is susceptible to rapid changes beyond the control of theautomotive industry. Furthermore, network congestion tends to have a negativecascading effect.

Three caveats are, however, necessary here:

• Firstly, transmission capacity and user connection speed will continue toincrease as telecommunications operators build out broadband networksusing the latest optical fibre technology, fuelled in no small part by greatercompetition and deregulation in the industry;

• Secondly, much of the bandwidth restrictions confronting firms today canbe overcome through use of broadband satellite communication; and

• Thirdly, as bandwidth expands, costs will fall.

Club members need to take cognisance of developments to create low-cost,high-bandwidth and low-latency connections, as they are likely to resolve presentInternet difficulties.

While Internet-enabled supply chain management is still in its early stage ofdevelopment in the Eastern Cape and KZN automotive industry, it could wellserve as a catalyst for change, enabling firms to build stronger links with theirsuppliers and customers. The ideal would be to see club members combine e-business technology with advanced supply chain integration to maximise bothprofitability and customer satisfaction. However, internal process efficiency andeffectiveness is a necessary first step before club members can use e-businesstools to leverage a broad base of collaborative supply chain opportunities.

Suffice to say that the vision of an integrated virtual e-business in the EasternCape and KZN automotive industry is a long way off. The convergence betweenback office and front office systems, all the way through to the Internet, is integral toe-business. The ultimate aim is to produce an integrated supply chain that iselectronically connected, and can respond rapidly to changes in customerdemand. It will enable club members to move beyond current static relationshipswith trading partners. In this way, club members can move from reactive

61 WAP is the XML-based specification that enables Internet access over mobile devices.

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asynchronous interactions to a more collaborative relationship. Each firm in thesupply chain should receive customer demand forecasts electronically, and theyneed to use collaboration functionality to either accept or challenge theseforecasts.

The trade-off in e-business depends upon the degree of functional integrationbetween dispersed business activities. Companies’ business plans must aim toextend automation along the supply chain, and integrate existing systems in amanner that avoids duplicate function and maintains usability, performance andreliability. For this, club members will need an integrated infrastructure tosupport their business applications. Since only an integrated IT application suitecan deliver on the e-business strategy.

According to Larry Ellison, the Chairman of Oracle, ERP focuses “on automatingprocesses, not on getting information to key decision-makers” (The Economist, 26June 1999). Simply implementing the ERP application is no guarantee ofimproving the bottom line through more efficient supply chains. Club membersshould, therefore, make increasing use of Web-based applications thatcomplement their ERP and MRPII systems, and improve the productivity of theoverall system. The need to be pervasive, to be part of an e-businessecosystem, rather than trading in linear fixed-supply chains, is forcing ERP andMRPII, as the core internal business platforms, to look outwards. Hence, it isimperative that ERP and MRPII be extended into Web-enabled customerrelationship management and supply chain management. The ideal situation iswhen a company’s IT infrastructure supports all aspects of the extendedelectronic enterprise, enabling the company to inter-operate and collaborate withany number of business partners (see Figure 5.9).

None of the firms have adopted e-commerce applications, viz. Internet applicationdevelopment tools, supplier-facing platforms, portals, trading exchanges,customer-facing platforms and commerce servers. The model for e-business is ahybrid structure. Companies, therefore, need to adopt Internet-based applicationsthat integrate the functions of, for example, CRM, SCM and E-Commerce, to geta panoptic view of their business right across the supply chain. Ideally, the newapplications, such as E-Commerce, should form part of a common, centralised,Internet-enabled architecture.

Club members also need to reach back through the supply chain to theirsuppliers and their suppliers’ own suppliers in order to ascertain whetherprocurement lead times will allow a customer order or demand forecast to be metby the required date. This is based on what is on hand, current demand alreadycommitted, what is already in transit, and what can be manufactured orpurchased. For this a firm needs customer-facing and supplier-facing Internetplatforms to leverage trading exchanges.

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All things considered, the new network-based IT offers South African automotivecompanies the potential means for unlocking their full economic potential and forre-organising their businesses, from the online procurement of inputs to moredecentralisation and outsourcing. We, therefore, recommend that club memberscircumspectly embrace e-business opportunities in their strategies and corporatedirection. Club members need to pay serious attention to the alignment of IT andbusiness strategy to leverage the capabilities of IT that can potentially transformtheir business. This is important as club members strive for competitiveadvantage in a highly pressurised, diverse and changing marketplace. There is,however, no blueprint or silver bullet that club members can take to be ready fore-business. They need, however, to go beyond the traditional view of justlooking at their own corporate capabilities; and understand that their growth andprofitability will increase by managing and improving the end-to-end process thatdelivers products to the customers.

There are two critical success factors of e-business, centred around thenetworking of internal and external business interactions, which club memberswill need to seize and rapidly exploit in order to be globally competitive. Firstly,collaboration functionality between the enterprise and outwardly focused portals inorder to strengthen the bonds between an enterprise and members of itsextended value chain is crucial. Apart from enhancing inter-enterprise electroniccommunication, club members will also need to focus on their intra-organisationalprocess capabilities to promote connectivity of the internal business processes in orderto tie transactional flows together within the organisation.62 The breaking of intra-enterprise information barriers is a prerequisite for fostering knowledge-sharingand the leveraging of expertise across the organization.

To reiterate, we recommend that club members improve the functionality of thecompany’s information and communication infrastructure, to create an efficient,flexible platform for doing business with outside firms. Club members will needto expand and deepen the reach of their company’s internal and external shared-industry IT platform. Tight linkages between organisational and inter-organisational systems will, therefore, need to be promoted.

E-business cannot be justified on faith alone, it will be by results that it will befinally judged by (i.e. what it actually achieves, rather than what it might do).Undoubtedly, some of the defining characteristics of the Internet era have still toemerge and develop. This will take years to play out. For example, in the 1980sthe US automotive industry wasted many billions of dollars chasing illusory gainsfrom Computer-Integrated Manufacturing (CIM) (Raphie Kaplinsky, personalcommunication).63 This sobering lesson from business history reminds us of the 62 These two critical success factors are interdependent components, and are pivotal to successful integrateddecision processing.63 To be fair, although CIM was a radical new process technology when it was introduced in the 1980s, itdoes not match the profound transformative potential on the structures and strategies of internationalbusiness that the Internet-based IT promises. The power and prospects of the new digital era ofglobalisation is well documented in Cohen et al. (2000).

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dangers of fetishising the technology itself, what Bessant (1993) callstechnophilia. In other words, club members must look critically at the actualbenefits (both tangible and intangible) to be derived from e-business for theircompany and for the value chain itself, and not accept at face value what theproponents of e-business tell them. After all, it is easy to be seduced by thedazzling range of IT options available on the market.

The Internet is not in itself a panacea or a quick-fix solution for all supply chaindifficulties, rather the idea is to use the technology to enable workers to solveproblems. For example, the Internet cannot possibly compensate for poorproduction/operations performance. Thus, there is still a place for a goodmeasure of old-fashioned, face-to-face human contact.

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9. Some Policy Implications For Government

The hype surrounding e-business needs to be tempered by the reality that alarge percentage of South African firms have yet to access the Internet forintegrating their internal business systems, and for inter-firm value chaininteractions. Nonetheless, the emergence of the Internet-based economy opensup a broad range of difficult and uncertain policy issues which demand attention.It is important to stress, though, that the Internet is evolving, and the presentInternet may well become a different set of technologies, standards and protocolsin the future. Further, we need to accept that while the Internet has madesignificant progress in business, it remains an infant technology.

The setting of policy is risky and particularly vexing when one is dealing with adynamic phenomenon that is evolving and changing rapidly. This underscoresthe need, therefore, for policies to be crafted very cautiously, and verycircumspectly. The policy agenda for government is briefly discussed below, withthe caveat that given the dynamic nature of the Internet, policy issues offered atthis stage can only be preliminary. In light of this, only preliminary policy issuesare discussed, rather than an exhaustive portfolio of concrete policies.

The Internet is expected to make a large impact on the organisation of work.Greater emphasis will be placed on flexibility and adaptability. New channels ofknowledge diffusion are likely to be opened, human interactivity in the workplacewill change, and workers’ functions and skills are likely to be redefined.Furthermore, new models for organising production and transacting business arelikely to emerge, and workplaces are likely to be restructured (OECD 1999: 10).These issues represent significant policy challenges for government, and alsoother stakeholders such as business associations and trade unions. The policydecisions made by government and the other stakeholders are likely to have amajor impact on the kind of environment in which e-business will develop.

In South Africa the productivity potential of the digital economy is constrained bya lack of critical infrastructure, especially electric and telecommunications.Without the needed infrastructural investment South Africa may find itself fallingbehind in an increasingly networked world. The South African Government(SAG) needs to take active steps to set policies which facilitate Internetdevelopment. Expanding and upgrading the electricity grid and the telecominfrastructure should be a major government priority, especially the roll-out ofbroadband infrastructure. The SAG will, therefore, need to actively spur thedeployment of advanced information infrastructure in the country and digitalconnections, such as cable modem, DSL (Digital Subscriber Line) and ISDN(Integrated Services Digital Network). Moreover, fostering a competitive marketfor broadband networks and services should be high on the government’sagenda.

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The Department of Communication will need to ensure that its policies assureopen and competitive markets, and deregulation in the telecommunicationsindustry. Apart from stimulating effective competition in the telecoms sector, theSAG should also consider using public subsidies and tax breaks to fund theconstruction of high-speed Internet networks in disadvantaged areas in southAfrica, where there is unlikely to be sufficient commercial demand for high-speedInternet access. This is one way of stimulating broadband access to correct for“market failure”, reduce the “digital divide”, and encourage SMEs64 to embracethe Internet. As large firms embrace e-business, SMEs are under pressure to dolikewise in order to be able to do business with the larger firms. The governmentwill therefore need to formulate policies targeted specifically at SMEs. The UKgovernment, for instance, is already considering subsidising e-networks(www.ft.com).

As e-business becomes more widespread in the South African economy, it islikely to drive changes in the labor market. Expanding Internet-usage and e-business will contribute to increased demand for IT workers (viz. computerscientists, engineers, programmers and systems analysts), changing skillrequirements for some non-IT occupations, and raise the minimum skillrequirements for many lower skilled jobs. E-business is very much part of abroader national trend that requires more skills in the work place and animproved basic education in mathematics and science.

The new ICTs are already creating new occupations and redefining old ones.There is concern that e-business will result in the displacement of jobs, andperhaps even a loss of traditional (old economy) jobs. Preliminary analysis bythe OECD (1999) and the US Department of Commerce (1999), for instance, donot support this concern at this stage. Observations on the impact of e-businesson employment creation are, however, speculative, since e-business accountsfor only a small share of total economic activity. Moreover, the potential of e-business is still to be fully realised.

E-business underscores the need for a multi-skilled workforce “committed to alifetime of learning and retraining in order to remain flexible in rapidly changinglabour markets” (US Department of Commerce 1999: 37). Firms’ ability tofunction in electronic environments will depend to a large extent on the flexibilityand adaptability of their workers. There is, therefore, likely to be a move awayfrom bureaucratic work organizations to flexible “cells” and teams. Hence, theneed for a flexible, multi-skilled work force. Skills needed to support e-businessand to perform business processes online will need to be passed on to workers.Government in partnership with the private sector will, therefore, need to take a

64 The developmental significance of SMEs is widely recognised in the inter-disciplinary field ofdevelopment studies, and will not be explored further here..

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proactive role in designing and implementing training programmes to makeworkers computer and Internet literate.

Initiatives designed to increase the IT skills base will, therefore, need to beintroduced. This is urgently needed because there is bound to be a greaterdemand for IT skills (upskilling of the labour force), technically trained informationprofessionals and technicians in the digital economy. The Department ofEducation, for instance, should seriously consider providing education andtraining to entrepreneurs and knowledge workers, expanding the pool of highlytrained scientists and engineers, and generally, increasing “digital literacy” in thewider population, preferably starting at primary school. This can take placethrough schools, vocational training centres, technical colleges, technikons,universities, etc. In addition, the Department of Labour will need to carefully lookat its labour market policies, as this is likely to impact on the way in whichworkers adjust to markets which are likely to be exposed to significant ICT-induced changes.

The Department of Arts, Culture, Science and Technology (DACST) could, forexample, take the lead in broadening public understanding of the evolution andgrowing significance of the Internet and the Information Economy. In addition,public investments in science and technology, advanced engineering, researchand development is important to create the intellectual and human capitalneeded for the use and development of advanced ICTs.

A re-examination of the Department of Trade and Industry’s (DTI) policiespertaining to ICTs, commerce and trade, and its support of traditional commercialpractices and procedures, is also needed. The DTI will need to elevate e-business to a higher position on the policy agenda, as is the case in the US andother OECD countries. The DTI will need to adopt new measures to promote theuse of e-business processes within the private sector, and perhaps even withinits own administrative processes as well. Policy initiatives designed, inter alia, topromote technology transfer for businesses interested in adopting Internettechnology, providing small business technical support, facilitating exportdevelopment and promotion (via e-commerce), and facilitating the diffusion of e-business best practices in the private sector, are pressing priorities.

The DTI must work closely with business to maximise the potential of e-businessin South Africa. The DTI will need to closely monitor developments in theelectronic marketplace in order to prevent or remove barriers to full participationby South African firms, especially SME’s and emerging black firms. However,much of the DTI’s supply side policies were formulated with a much differentimage of commerce and trade in mind. The DTI will now have to grapple with theissue of how to organise markets in the Information Economy. Achieving theefficiency gains promised by the Internet is contingent on a number of factors,including access to networked IT systems and the requisite skills, and firmsintegrating their operations more closely with that of their customers and

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suppliers. The latter, of course, raises policy issues concerning potentially anti-competitive effects as firms integrate their operations more closely. This isanother issue which the DTI will have to closely monitor.

Government also needs to make substantial investments in rule-making. TheInternet economy is global. Therefore, government should ensure thatcompatible rules are in place which allow national electronic networks to operateas a single large global system. In other words, government assures connectivityto the interconnected global network through national rules which are inconsonance with international rules such as the WTO. E-business highlights theneed for a consistent regulatory environment concerning issues like tax law,commercial codes, customer protection, security, privacy, intellectual propertyrights, etc. This is needed to establish the conditions to enable e-business ande-commerce to reach its full economic potential in South Africa. There is a rolefor government to promote the development and availability of ICTs and accessto advanced networks by, for example, tweaking existing telecommunicationspolicy and through other more appropriate policy instruments (see OECD 1999:19).

The US government policy on e-commerce is guided by three principles: privatesector leadership, avoidance of unnecessary restrictions, and a minimalist governmentrole (US Department of Commerce 1999). The first and third principle are likelyto be problematic in a developing country like South Africa, where the automotiveindustry has been slow to take up e-business, and where there is an unevendevelopment of critical infrastructure. The second principle, however, is relevantfor South Africa. And Government should avoid imposing undue restrictions onthe diffusion of e-business, rather it should maximise the efficiency dividend forthe economy by removing barriers in the uptake of e-business in key-sectors.

Finally, from a development perspective, a prime concern for government is tofocus policy geared to including potentially excluded social groups in the Internet-based information systems. Otherwise, a widening digital divide betweenInternet “haves” and “have-nots” is likely to be the outcome. A coherent nationalstrategy designed to close the digital divide is warranted. Government could alsotake a lead role in adopting the new ICTs to increase efficiency, and to increaseaccess to its goods and services for all South Africans. E-commerce could, forexample, be used in government procurement.

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10. Future Research Agenda

Rigorous research is needed in order to get a clearer picture of the problems andthe potential of e-business in the South African automotive sector. There isconsiderable room for original and fundamental empirical research on e-businessand supply chain issues in the South African automotive industry. In this sectionof the report we identify a number of areas for future research. As alreadymentioned in the introduction, the framing of research hypotheses and questionsis an important output of this pilot study. Accordingly, sets of issues for anextended study are summarised below.

The following four hypotheses emerge quite clearly from this exploratory study,and will need to be rigorously investigated in an extended study, using a largerand more representative sample:

• H1: “Effective integration of suppliers into the supply chain is a key factor forautomotive assemblers and component manufacturers to achieve theimprovements necessary to become internationally competitive.”

• H2: “Running an e-business requires an integrated IT system. The convergencebetween back office and front office systems, all the way through to the Internet, isintegral to e-business.”

• H3: “Eliminating both intra- and inter-enterprise information barriers is aprerequisite for success in the automotive industry.”

• H4: “E-business is a necessary condition for global competitiveness.”

The preliminary findings of the exploratory study suggest that we need to look atimpact of the Internet on value chains. Therefore, one major recommendation forfurther research would be to conceptualise the next phase of the e-businessresearch explicitly in terms of the value chain paradigm. The Global CommodityChain (GCC) theoretical construct has been put forth by the influential DukeUniversity sociologist, Gary Gereffi, and has been elucidated at numerousinternational conferences and workshops65, and in academic publications (seeReference Section below). The predictive and explanatory power of the GCCframework, we believe, will add depth and rigour to the e-business study.

The pilot study was based on a small sample of firms that belong to the EasternCape and KwaZulu-Natal Benchmarking Clubs. For the next phase of theresearch, we recommend that a bigger and more representative sample be used,consisting of a cross-section of South African auto retailers; assemblers; and 1st,2nd and 3rd tier automotive component suppliers. This is needed in order to better

65 See www.ids.ac.uk/ids/global/bella.html.

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understand the impact of e-business on the whole value chain, and not just onisolated segments. For example, does the new IT reinforce existing relationshipsin the value chain or does new kinds of relationships emerge?

Our survey results capture and reflect the early stages of e-business adoption inthe Eastern Cape and KZN Benchmarking Clubs. Detailed follow-up studies aretherefore crucial to trace the evolution of e-business in this importantmanufacturing sector, which is a significant generator of revenue and animportant source of employment in both the KZN and Eastern Cape provinces.This is vital in an upper-middle-income developing country like South Africa,where industrial employment is still considered as having the potential to raisethe living standards of the poor. The aim would be to build a rich databasefocused on the critical success factors of e-business, which will feed directly intoongoing training programmes and establish standardised best practice. Theobjective is to create a database which will be annually updated. This will betracked through questionnaires, baselines studies and trend analysis.

Tracking the impact of the Internet may well require new economic measuresand measurement techniques. In addition, we will need to sharpen our analyticaltools. Using benchmarking methodology, a composite index of e-businesscapacity needs to be created. This will enable companies to plot theirperformance over time. Moreover, the e-business database can help companiesby showing them where their weaknesses are and where improvements could bemade. Thus, club members will be able to identify weaknesses and capabilitygaps, and prioritise initiatives. In this way, enterprises will be able to gain arealistic assessment of their e-business development through diagnostic reports.

There is a dire need to establish and promote “best practice” standards. It isimperative that an assessment model be created which offers somethingpreviously unavailable to the Eastern Cape and KZN automotive businesscommunity: a comprehensive, yet credible way to benchmark e-businessperformance. Club members should be able to benchmark their position againstthat of their competitors.66 A framework needs to be developed to help clubmembers structure their ongoing e-business operations in such a way that theirprogress can be measured against their competitors, their market and theirindustry – but also against the company’s own expectations and those withwhom it does business. In sum, a yardstick will need to be created for measuringe-business development. The proposed methodology would consist of a mixtureof case-study, survey and facilitated benchmarking.

We also recommend an assessment of each company’s structures and work-styles, not just IT practice. E-business is often only seen as a technology issue,and not as a question of leadership and adaptability. For example, an enterprise

66 Measurement, along with continual benchmarking, is fundamental to achieving best practices and returnon investment.

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may have made big strides in electronic selling, without fully understanding howe-business can sharply reduce development cycles for new products, slashadministrative overheads and seamlessly link people and information. Moreimportantly, it may have a culture that resists innovation. Essentially, do the clubmembers have the open cultures and agile structures needed for e-business toflourish?

We also recommend that a “gap analysis” be undertaken, in which clubmembers’ original expectations of their IT systems and what these systems haveactually delivered are mapped out. How do the firms assess e-businessperformance: financial return, customer-centric metrics, etc.? Do companieshave a system in place to assess the success of their e-business programmes?Do club members have any quantitative or qualitative methods to measure e-business performance?

A recurring theme in this report is that the sharing of inter-company information isof paramount importance in the process of supply chain integration. Therefore acrucial research question that emerges from this study is: Are the 2nd and 3rd tiersuppliers’ IT roadmap aligned with that of 1st tier component manufacturers andthe OEMs? In other words, is there a move towards convergence of ITroadmaps between the different players in the value chain?

E-business penetration in South Africa has been quite shallow. A key researchquestion then is : How and when can IT be used optimally in the South Africanautomotive industry? A certain amount of historical reflection is probably neededhere, as well as reflecting on the idiosyncrasies of each company. Also, how canautomotive companies translate Internet technology into economic value and,more broadly, into sustained economic growth? As a counterfactual, thefollowing research question is important: Should the development of e-businessbe treated as a goal in itself? Since resources have alternative uses,researchers should compare the rate of return in e-business to those in otherbusiness activities before committing resources to IT.

Research is urgently needed to rigorously assess the impact of e-business onproductivity in the automotive sector, and to explore the notion that thisapplication may lead to a sustained higher level of economic efficiency. Thenotion that e-business may lead to sustained systemic efficiency gains alsoneeds to be explored. Another area for future research would be to use firm-level data to analyse the competitive behaviour of e-business adopters on thedomestic and international markets. Has e-business changed the firms’competitive advantages?

A case can be made for the Department of Trade and Industry (DTI) to providesupport and actively encourage the automotive industry to become e-corporations. The question that policymakers need to critically interrogate is:What institutional support can the South African government provide for e-

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business initiatives to bolster the comparative advantage of South Africanautomotive firms?

A limitation of this pilot study is that the sample was too small for us to drawconclusions about the feasibility of small and micro enterprises, and emergingblack businesses, becoming involved in e-commerce activities. Not enough isknown about this important segment, making it a prime area for future research.In the next phase of the research, we intend selecting a larger sample of smalland micro enterprises, who are engaged in sub-contracting relationships withautomotive firms, in order to track their e-business development in a morethorough manner. And also to chart what possibilities the Internet holds for themin terms of leveraging market opportunities; tapping into B2B e-commerce trade;value chain upgrading; becoming more tightly linked into B2B supply chains;harnessing value-added activities; etc.

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11. Survey Findings

To reiterate, this section of the report presents and analyses the empirical datawhich was generated primarily through an IRP-designed questionnaire, whichwas administered to the IT director or an appropriate director/senior manager ofeach firm (see Appendix 1). This survey data is complemented, whereappropriate, with information garnered from discussions with key informants inthe automotive industry; automotive factory visits in both the Eastern Cape andKZN; active participation in Eastern Cape and KZN Benchmarking Clubworkshops; and a survey of the e-business literature, including the businesspress, academic publications and Internet resources. The combination ofresearch methods was used to facilitate triangulation of the research findings.

The survey findings are presented in a structured manner. In order to provide acoherent analytical framework, this section is divided into a number of sub-sections: viz.:

• E-business strategy

• E-business goals

• IT audit

• Purposes for which club members use e-business tools

• Key e-business drivers

• E-business perceptions

• How IT has changed the way in which club members transact business

• How IT is used in supply chain integration

• Digital exchange networks

• Benefits of e-business technologies

• Impediments to the adoption of e-business tools

• The impact of the new IT on the firm

• Projections of e-business growth

The sub-sections should be seen as a heuristic device to generate preliminaryobservations, and to guide the reader by flagging important aspects of e-business as it pertains to the club members.

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Ultimately, the survey findings shed light on the research questions set forth inSection One of the report, and is repeated here for the benefit of the reader:

• What are the key drivers of e-business in the South African automotive industry?

• How does top management in the automotive industry perceive e-business?

• For what purposes do automotive firms use e-business tools?

• What types of IT has each firm invested in?

• What kind of impact has e-business had on each company?

• What are the benefits of e-business for the enterprise?

• To what extent is each firm practicing e-business-enabled supply chainmanagement?

• What are the barriers or obstacles to the adoption of e-business technologies ineach enterprise?

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11.1 E-Business Strategy

TABLE 11.1: E-Business Strategy

RESPONSE Frequency PercentYes 10 66.7No 5 33.3

TOTAL 1567 100.0

Table 11.1 above shows that a substantial 66.7% of club members have somesort of e-business strategy which they intend translating into practice. This isquite high considering the newness of the technology in the developing world.These strategy documents, however, vary widely in levels of formality andsophistication. On close scrutiny, we found that five of the documents containeda broad competitive growth trajectory for the companies in question, in which ITwas “tacked on” in an ad hoc way as a potential value-creator. Those documentswhich purported to be e-business vision statements were often quite shallow intheir conception,68 and not very technically and strategically coherent. In threecases, a narrow, technical view of IT was taken, rather than a wider strategicview of IT capability.

While club members acknowledge the need to develop an e-business strategy,many remain confused by the hype surrounding e-commerce. E-business is theconnective tissue between business goals and the IT components that enablethem. E-business, therefore, necessitates a comprehensive strategy thatautomates a company’s constellation of relationships – business partners,competitors, customers, employees and suppliers – into a unified value chain, allbased on transmission control protocol/Internet protocol (TCP/IP) and Webapplications. The objective of which is to integrate the front office and the backoffice operations of the firm, with the Internet as a strategic foundation. Thisleitmotiv did not underpin any of the firm’s programme statements that we had theopportunity to study.

It appears that most of the firms are not yet able to fully define their tactical andstrategic e-business needs and objectives. This clearly underscores the majorityof club members’ confusion about e-business and its relevance to business

67 The Eastern Cape Benchmarking Club consists of 7 members, and the KZN Benchmarking Club has 12members. Thus making a total of 19 club members. Two club members, however, were unable toparticipate in the e-business survey. Moreover, Shatterprufe is one company with 2 plants in differentlocations in Port Elizabeth. The 2 Shatterprufe plants have the same IT infrastructure, and thus onecompleted questionnaire was returned for both plants. Similarly, both GAP and Guestro Forge are countedas one respondent. This is justified on the basis that both GAP and Guestro Forge are part of the DorbylAutomotive Technologies group, have the same IT systems in place, and are run along similar lines.68 As compared to Dell Computer, and the leading-edge global assemblers such as Ford, General Motorsand Daimler-Chrysler.

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strategy. In effect, they have fallen short of the ideal-type e-business model intheir corporate strategy. 69

69 Dell Computer’s build-to-order business model is probably the closest example of an ideal-type exemplarof e-business-enabled supply chain management. For more detail see Gereffi (2000: 9) and Magretta(1998).

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11.2 E-Business Goals

Each club member was asked to list its enterprise’s IT goals. Box 11.1 (on thenext page) reveals that most of the club members had no concrete plans to adopte-business-enabled supply chain management in their enterprises, althoughsupply chain issues were implicitly articulated in some cases. Firm 15 is anoutlier in this respect, it seems to have given a high priority to supply chainissues (such as inventory control; collaboration both up and down the valuechain; demand forecasting; online customer interaction; supply chain planning;improving the distribution channel; greater “visibility” in the supply chain; etc.) inits IT goals. From the responses in Box 11.1, there is no mention of establishingan integrated Web-based IT architecture to integrate front and back officesystems for the purpose of optimising supply chains. Most of the goalsconcentrate on the idiosyncratic concerns of each club member. Moreover, mostof the firms seem to be focusing on output advantages of e-business, i.e.responding to customers rather than on supply chain management per se.

Five club members explicitly reported e-business technology goals: theconsolidation of EDI links (Firms 1 and 3); Intranet connectivity (Firm 3);standardisation of software (Firm 3); use of the Internet to reach export markets(Firm 6); establishing an e-commerce portal (Firm 13); and the consolidation ofERP (Firm 8). Two club members mentioned explicitly that they have no specifice-business goals (Firms 5 and 14), and another claims to be adopting a reactive“wait and see” strategy (Firm 6). Most of the other goals concern the use of IT toimprove exports; reduce costs; raise efficiency; improve the operationalcompetitiveness of the firm; increase profits; deepen communication withcustomers; improve customer service; reach new markets for the company’sproducts; and the use of IT for business intelligence purposes.

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BOX 11.1: Corporate Goals

• Firm 1: “Establish and consolidate EDI links with customers, manufacturers and 1st

tier suppliers”.

• Firm 2: “Customer rapport…distribution of information…building customerrelationships”.

• Firm 3: “Standardising software across the enterprise and the Group…consolidating EDI links with customers and establish Intranet connectivity”.

• Firm 4: “Improve productivity, efficiency and profits… reducing cycle times andcosts”.

• Firm 5: “Do not really have any specific e-business goals…our goal is to sustaincompetitive advantage.”

• Firm 6: “To get some idea of where e-business is going….systems areconfusing…there is a compatibility problem…we are adopting a wait and seeapproach…essentially we are responding to customer requirements”.

• Firm 6: “Use of Internet to penetrate export markets”.

• Firm 7: “Triple turnover….expansion….exports”.

• Firm 8: “To implement the next phase of SAP [an ERP system]”.

• Firm 9: “To control costs and become more competitive”.

• Firm 10: “To find new market opportunities…increase productivity and shareholdervalue”.

• Firm 11: “Increase business through exports obtained via our new owners”.

• Firm 12: “To provide operational management with the most accurate and timeousinformation so that they can perform their tasks efficiently … emphasis on no wasteand improved customer service … introduce B.I. for profitability and option studies”.

• Firm 13: “A pilot e-commerce site is under construction”.

• Firm 14: “No specific e-commerce goals … our focus now is on training”.

• Firm 15: “Increase exports; optimise production efficiencies and inventory levels; re-design the vehicle distribution process; move towards meeting customer demands inacceptable time frames; achieve our promises to customers; greater collaborationwith suppliers; improve visibility and planning throughout the supply chain; allowcustomers to configure and research vehicles online; and improve demand forecast… ultimately we aim to align the organisation to our core business processes”.

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11.3 IT Audit

A glossary of IT is included in this section of the report (see Box 11.2 below), theintention of which is to provide brief explanations for technical terms used inTable 11.2 below.

BOX 11.2: Glossary of IT Terms

• Computer Aided Design (CAD): refers to any computer-enabled method of design.

• Customer Relationship Management (CRM): an Internet solution that, supposedly,integrates sales, marketing, service, e-commerce and call centre applicationsenabling a firm to leverage customer intelligence across unified communicationchannels, to provide a broad and inclusive view of its customer relationships.

• E-Commerce: Web-based business transactions.

• Electronic Data Interchange (EDI): enables computers of different types to directlysend and receive information via any electronic medium.

• Enterprise Application Integration (EAI): refer to standardised, integratedoperational applications that bring a company’s IT together in a coherent whole.

• Enterprise Resource Planning (ERP): an integrated system of operationapplications encompassing contract and order management, distribution, financials,HR management, logistics, production and sales forecasting.

• Extranet: uses Internet technology to interlink firm-specific Intranets enablingbusiness partners, customers and suppliers to share corporate data (Mansell andWehn 1998).

• Internet: a “network of computer networks” connected together and extendingacross the globe. This collection of networks provides access to email, databases,computers, etc. using the transmission control protocol/Internet protocol (TCP/IP).

• Intranet: is accessible only to users of a corporate network (running on public orprivate networks) which may span multiple business locations. It uses the samesoftware standards as the Internet but it operates behind secure “firewalls”, so thatonly authorised users have access.

• Manufacturing Resource Planning (MRPII): a management planning system whichhas evolved from MRP. In essence, MRPII includes MRP and adds othermanagement ingredients, such as tooling, routing procedures, capacity availabilityand man-hours requirement (Brown 1996: 239).

• Material Requirements Planning (MRP): MRP is a production planning tool, and isa subset of MRPII. Key aspects of MRP include: design data; bill of materials;forecast demand; firm orders; master production schedule; inventory file; purchasing;and other reports (Brown 1996).

• Supply Chain Management (SCM): electronically links sales, marketing,distribution, manufacturing processes and business partners together for,supposedly, a more unified and timely approach to the market and customer.

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TABLE 11.2: Mapping IT

E-BUSINESS TECHNOLOGY Yes No

Internet 100.0% 0.0%

Computer Aided Design (CAD) 86.7% 13.3%

Electronic Data Interchange (EDI) 73.3% 26.7%

Material Requirements Planning (MRP) 66.7% 33.3%

Enterprise Resource Planning (ERP) 40.0% 60.0%

Manufacturing Resource Planning (MRPII) 40.0% 60.0%

Intranet 20.0% 80.0%

Enterprise Application Integration (EAI) 13.3% 86.7%

Supply Chain Management (SCM) 13.3% 86.7%

Extranet 6.7% 93.3%

Customer Relationship Management (CRM) 6.7% 93.3%

E-Commerce 0.0% 100.0%

Enterprise Resource Planning (ERP)

Only 40% of club members have an ERP system in place. This is not surprisingconsidering that ERP is a complicated, expensive big company application,requiring specialist staff to manage it. An ERP system is an integrated suite ofsoftware modules that automates internal “back office” operations for eachfunction within an organisation, such as manufacturing, distribution, finance,purchasing, sales and human resources. The six club members who have ERPhave still not integrated their internal systems. These firms tend to be focused onthe customer interface, important though it is, without recognising that integratingthis with the back office support systems is necessary for delivering on thepromise of e-business.

ERP has traditionally focused on achieving operational efficiency within theenterprise (i.e. it is inwardly focused), rather than trying to increase theorganisation’s effectiveness outside the enterprise (viz. its external capability).70

Firms need to be linked with suppliers, partners and customers to create virtualvalue chains (see Section 5.5). Suppliers need to be linked not just to the extentof being able to accept orders, but also to allow internal systems to be queried.ERP provides an essential backbone for business processes within theorganisation, but it will need to be extended out across the Internet.

70 E-business requires that organisations open up their internal systems to suppliers, customers and partnersover the Internet. E-corporations need to provide instantaneous inventory availability and follow up withdetails of transportation and delivery date. Thus putting immense pressure on the link to the ERP system.

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MRP, MRPII and EDI

Many club members are still using the first wave of e-business technologies,such as EDI (73.3%), MRP (66.7%) and MRPII (40%); all of which have reachedan inflection point. EDI is limited in that it provides only very basic informationabout transactions, is inherently inflexible 71, and is unable to respond quickly torapid shifts in the marketplace. The interactions between the parties had, ofnecessity, to be limited to a small number of potential transaction partners.Further, EDI is based on expensive proprietary technologies which tends to “lock”suppliers and customers together (The Economist, 26 June 1999). Legacy MRPand MRPII systems using a client server-based architecture are likely to becomeobsolete in the move towards Web-enabled architecture. MRP and MRPII areconcerned with automating internal processes and increasing efficiencies withinorganisations only. These systems do little, if anything, to connect processesamong businesses.

CRM, SCM And E-Commerce

The new generation of corporate IT applications, viz. e-commerce (0%), SCM(13.3%) and CRM (6.7%) have not made a big impact on club members. Severalof the club members, however, indicated to the researchers that their company’sinvestment in the new IT will increase over the next 3-5 years. According to itsproducers, SCM has been designed to link sales, marketing, distribution,manufacturing processes and partners together for, supposedly, a more unifiedand timely approach to the market and customer (F&TNet 2000). The electroniclinkages that are potentially established through SCM attempts to enablecompanies to forge alliances with suppliers, customers and carriers to reduceoperating costs, enhance customer service and expand into new markets.Whether this is actually the case in practice is outside the scope of this report.Our objective here is merely to provide a profile of the IT application packagesthat club members are currently using, rather than to critically assess the meritsof the different software packages. This may well be an issue which could betaken up in the extended research agenda.

CRM is a front office application that has been created for the purpose of tyinginto back office software such as corporate databases which holds potentiallylarge volumes of data on customers, services and other mission-criticalinformation. CRM has been designed to allow companies to create and maintainrelationships with customers, an important part of revenue growth. CRM is anew application package which has been promoted by IT companies as a toolthat enables enterprises to identify and acquire new customers, enhance theprofitability of existing customers, and create long-term relationships withcustomers. CRM claims to deliver an Internet solution that integrates sales,marketing, service, e-commerce and call centre applications allowing a firm toleverage customer intelligence across unified communication channels to provide 71 Unlike the open standards and architecture of Internet computing.

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a broad and inclusive view of its customer relationships. Whether CRM actuallyachieves what its designers promise is of course a moot point, and is outside thescope of the present study.

Internet, Intranet and Extranet

Although all club member have access to the Internet, none of them where usingthe Internet for supply chain integration. The fact that club members connectwith the Internet, however, does not imply that Internet use is extensive. Also,the number of employees within the firms who have access to the Internet isquite small. Only, three firms are currently using an Intranet, and one clubmember reported that it has an Extranet in place.

The researchers conducted an Internet survey of club members’ websites, theresults of which show that they are invariably not much more than a front end, anonline catalogue with orders being emailed, faxed in, and/or taken over thetelephone. Customers are unable to check, for example, on service call status,order shipping status and delivery information via the Internet. Two firms usetheir websites to take orders and deliver products but have not added anycapabilities such as customisation or interactivity to distinguish the service fromother types of direct selling. This does not necessarily constitute e-commerceper se because the firms have not developed a fully transactional Internet saleschannel.

It would appear as if too much emphasis is being placed on establishing a webpresence and too little stress is placed on ensuring that the IT infrastructure isable to support online procurement72, trading, marketing and customer sales.Most of the club members are at the stage of basic online “brochureware”.Companies have developed static information on a website, with minimal abilityfor any interaction beyond email, company background, and in a limited numberof cases, the placing of orders. None of the club members have an integrated e-business where the customer-facing front-end of its website is effectivelyintegrated with back-end systems linked to key suppliers and third parties.

The sluggishness of these companies is reflective of the caution with whichenterprises view an IT tool that is still developing. Many club members feel that amisplaced step into the B2B e-commerce space will not just result in the loss ofsubstantial investment, they fear that they are also “betting the firm” on the move.This is exacerbated by the fact that many companies do not understand howtheir electronic business tracks with the rest of their business.

Club members’ websites were unable to integrate customer databases, supplierdatabases and call-centre operations. Nor were they able to support multiplepayment methods. Internet use is confined mainly for marketing and leadgeneration rather than for business transactions. Respondents cited inadequate 72 By procurement, we mean the purchasing of raw materials, supplies and other company assets.

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systems integration and the lack of standards for sharing B2B e-commerce data asthe main barriers to automated order entry. An e-corporation goes further thanlinking in the order entry system. It also needs to allow customers to check theprogress of orders, to link in technical support and other customer services, andto integrate the website to other channels such as call centres, faxes and email.Furthermore, it should be able to take orders and seamlessly transmit informationto its procurement system.

Enterprise Application Integration (EAI) Tools

Only two club members are presently using enterprise application integration(EAI) tools. Moreover, discussions with club members revealed that none ofthem are currently using, or plan to use, eXtensible mark-up language (XML) tointegrate IT applications across and between value chains. EAI tools refer tostandardised, integrated operational applications that bring a company’s ITtogether in a coherent whole which, it is claimed, can cut costs and squeezeinefficiencies out of a firm’s supply chain. E-business, it is argued, will not workwithout IT systems which are integrated and architected for the Internet. EAIoffers the possibility of integrating business processes with real-time transactionlinks across disparate/diverse applications.

Technical compatibility promoting process cohesiveness among differentsystems is important if an integrated value chain - the foundation for e-business –is to be created. Technical incompatibilities – dissimilar systems with inherentdata leakage between them – compromise links built between front-office andback-office systems. Middleware are now available on the market which allowsapplication components to communicate through standardised messages,thereby simplifying the coupling between systems. As a result the integration ofdisparate applications, it is claimed, becomes increasingly flexible andmanageable. Middleware can potentially integrate applications running not onlywithin but also beyond a company’s boundaries.

Essentially EAI tools are designed by the IT companies to make a firm’sapplications communicate with other systems, and to enable companies to link totheir suppliers and customers across the Internet. In order to tie businessprocesses together with workflow systems, club members need a well integratedIT infrastructure. The IT infrastructure of a truly automated and integrated firmmust combine several core IT applications in many layers so that information onall transactions can be tracked and monitored from a central location, andprovide trading partners with the best opportunities for significant cost savings inprocurement and supply. The benefits to be accrued appear to be quitesubstantial: cost reduction, improved customer service, the creation of newmarket opportunities, and a compression of the business cycle. Again, we addthe caveat again that the situation in practice might be at odds with thehypothetical benefits of EAI tools. Also there are many different EAI tools on themarket, some are likely to be better than others in different contexts.

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11.4 Purposes For Which Firms Use E-Business Tools

TABLE 11.3: For What Purposes Does Your Firm Use E-Business Tools?

PURPOSE Yes NoCommunication 100.0% 0.0%Order Processing 86.7% 13.3%Production 80.0% 20.0%Engineering/Technical 80.0% 20.0%Design 80.0% 20.0%Inventory Management 80.0% 20.0%Logistics73 73.3% 26.7%Sales 60.0% 40.0%Marketing 60.0% 40.0%Procurement 46.7% 53.3%Services & Support 40.0% 60.0%Application Integration 40.0% 60.0%Management of Distribution Channels 33.3% 66.7%Research 33.3% 66.7%

Each club member was asked to list the main purposes for which e-businesstechnology is used. As highlighted in Table 11.3 above, club members make useof e-business tools principally for communication (100%); order processing(86.7%); design (80%); inventory management (80%); engineering and technical(80%); production (80%); logistics (73.3%); marketing (60%); and sales (60%).Limited use of e-business technology was also reported for procurement(46.7%); application integration (40%); services and support (40%); managementof distribution channels (33.3%); and research (i.e. the use of the Internet forconducting information searches for products, services, etc.) (33.3%).

73 Both inbound and outbound logistics.

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11.5 Key E-Business Drivers

TABLE 11.4: Principal E-Business Drivers

DRIVERS NotImportant

MarginallyImportant

Important VeryImportant

Connectivity 20.0% 13.3% 6.7% 60.0%Globalisation 6.7% 20.0% 13.3% 60.0%CustomerRequirements

13.3% 13.3% 20.0% 53.3%

“Other” 0.0% 13.3% 46.7% 40.0%Closer Integration withSuppliers

13.3% 13.3% 40.0% 33.3%

Business Flexibility 33.3% 13.3% 20.0% 33.3%Agility 26.7% 20.0% 26.7% 26.7%Internet 40.0% 13.3% 20.0% 26.7%Trade Liberalisation 53.3% 13.3% 13.3% 20.0%IncreasedCompetitiveness

20.0% 13.3% 46.7% 20.0%

Standards 33.3% 26.7% 33.3% 6.7%Consolidation 60.0% 20.0% 13.3% 6.7%

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Each club member was asked to list the cardinal e-business drivers in theautomotive industry. Table 11.4 shows that club members identified “other”(86.7%); globalisation (i.e. expanding globalisation strategies by companies)(73.3%); customer requirements (i.e. a growing emphasis on more efficientcustomer service) (73.3%); closer integration with suppliers (73.3%); increasedcompetitiveness (66.7%); connectivity (66.7%); agility (53.4%); and businessflexibility (53.3%) as being the key drivers (marked as either important or veryimportant in Table 11.4 above) impelling firms in the automotive industry to adopte-business technologies.

The “other” box includes diverse drivers such as:

• links with overseas technology partners

• joint ventures

• closer integration with customers

• market expansion

• customer retention

• improved efficiencies

• customer information exchange

• supplier information exchange

• fostering innovation

• accelerated speed to market

• increasing market share

• an accentuated need to streamline business processes

Furthermore, a number of “second-gear” drivers were also mentioned by therespondents, viz. spread of the Internet (46.7%); standards (40%); tradeliberalisation (33.3%); and consolidation in the automotive industry (20%). Fromthe list of e-business drivers, it is clear that most of them impact in some way orthe other on the supply chain, even though extending the supply chainmanagement process was not explicitly mentioned. This implies that value chainissues are a concern for club members, and are major organisational marketdrivers. It is interesting though that these drivers are often not part of thecompany’s corporate goals (see Box 11.1).

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11.6 E-Business Perceptions

Preparing for the e-business market requires a new mind-set to doing business inthe Information Age. Hence it is important to understand how the key decision-makers in the firm perceive e-business and the Internet (see Table 11.5 below).The objective of Statements 1 to 5 is to roughly gauge whether club membersperceive e-business as being important for their firms’ competitive success.Statements 6 to 8 aims to find out whether club members have an accurateconceptual understanding of e-business. From the responses, a case for changemanagement to realign “traditional” business mind-sets can be made for someclub members. It would appear as if the perception data yielded mixedresponses as far as the club members’ commitment to e-business is concerned.The main reason for this is that a large percentage of club membersunderstanding of e-business is still somewhat fuzzy.

TABLE 11.5: E-Business Perceptions

Statements StronglyAgree

Agree Neutral Disagree StronglyDisagree

1. In 3 years my company will be more relianton e-business

40.0 40.0 6.7 6.7 6.7

2. Exploiting the full potential of the internet isa high priority for my company

33.3 33.3 13.3 13.3 6.7

3. Companies in my sector without e-businesswill be at risk of going out of business

0.0 33.3 40.0 20.0 6.7

4. E-business corporations in the automotiveindustry are a serious competitive threat tomy company

6.7 40.0 26.7 20.0 6.7

5. As online intermediaries emerge in B2Btrade and more large companies shift theirprocurement online, suppliers are at risk ofbeing shut out by their customers

20.0 46.7 13.3 13.3 6.7

6. E-business and e-commerce are essentiallythe same

6.7 33.3 20.0 33.3 6.7

7. E-business is more about technology thanabout strategy

0.0 13.3 40.0 40.0 6.7

8. E-business companies must be willing tobring suppliers and customers deep intotheir processes and to develop a similarunderstanding of their business partners’processes

26.7 53.3 6.7 13.3 0.0

An significant 80% (i.e. agree and strongly agree columns) of club membersbelieve that they will become more dependent on e-business in the next fewyears. On the surface, this would seem to suggest that many of the clubmembers regard e-business as being important for their long-term competitivesuccess.

A substantial 66.6% ( i.e. agree and strongly agree columns) of club members feltthat building Internet capacity is a high priority for their companies. Surprisingly,however, 33.3% of club members still believe that the Internet is not key to theirlong-term survival. They still do not conceive of the Internet as a source of

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significant strategic advantage that will allow them to focus on their corecompetencies, and form partnerships with suppliers that can provide other keycapabilities.

Only 33.3% of club members believe that companies in the automotive sectorwho shun e-business are likely to lose market share. So the impression createdis that e-business competence is not a cornerstone for long-term survival, i.e. it isnot a critical success factor.

Only 46.7% (i.e. agree and strongly agree columns) of respondents believe that e-corporations constitute a strong competitive threat to their own companies, if theydo not become e-business literate themselves. It appears as if the majority ofclub members are underestimating the power of e-business, especially as aprime competitive differentiator in the global economy. It is also revelatory as faras their commitment to e-business is concerned.

The majority of club members (66.7%) recognise the risk of getting shut out oftraditional supply relationships by middlemen in B2B trade and onlineprocurement networks, if they do not possess the requisite Internet savvy.

It appears that a significant proportion of club members (60%) do not fullyunderstand the distinction between e-business and e-commerce. E-business isabout transforming key business processes and deriving value from the Internetand other electronic networks. This goes far beyond buying and selling over theInternet (i.e. e-commerce); it penetrates deep into the processes and culture ofan enterprise. The danger is that e-business may fail to live up to today’seuphoric expectations if it is used sub-optimally because of a lack ofunderstanding on the part of key top- and middle-level managers. Furthermore,the potential risks of policy errors are high in such an environment of uncertainty.

To separate the hype from reality requires one to recognise that the shift to e-business requires more than installing new software and technology. Only46.7% of club members understood that e-business is not primarily abouttechnology investment. Rather, it is fundamentally about a new corporatedirection, a new mind-set to doing business in the digital Information Economy.E-business is, in essence, about transforming business models and processesenabled and supported by network-based IT. It is believed that to take advantageof e-business opportunities, enterprises will have to blend elements oftechnology, process, management and strategy. Expert opinion suggests that ane-business initiative succeeds when it reflects an alignment of all elements. Ifone part of the equation is ignored, or if the technology is fetishised, the entireproject is at risk. Club members will need to take this into consideration.

The vast majority of club members (80%) were able to grasp a fundamentalfeature of e-business, namely that it is primarily about collaboration andpartnership between different stakeholders. Over time the unit of strategic

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analysis has moved from the single company to the “extended enterprise” whichconsists of a central firm supported by a constellation of suppliers, investors,customers and business partners. Harnessing competencies becomes afunction of the collective knowledge available to the whole system. It is claimedthat e-business creates the infrastructure for active ongoing dialogue with diversetrading partners.

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11.7 How Has The New IT Changed The Way In WhichEnterprises Transact Business?

The results of the IRP survey capture and reflect the early stages of e-businessadoption amongst the Eastern Cape and KZN Benchmarking Club members.Internet-enabled supply chain management is still in the early stage ofdevelopment in the South African automotive industry. It is important to keep inmind that despite how quickly e-business has changed the North Americanautomotive industry landscape, it is still a new paradigm in developing countries.For instance, in South Africa the evidence of real benefits is still scattered andanecdotal. This is mainly due to the slow uptake of the new generation ofnetwork-based IT by the automotive industry. We have already seen (IT audit,Section 11.3) that none of the club members are operating a Web-basedarchitecture which is hooked into a common information system. This is notsurprising considering that, for instance, very few European firms are fully Web-based.

Taking these factors into account, we were not expecting to find that clubmembers have changed the traditional ways in which they conduct business inany radical way (see Box 11.3 on the next page). The changes reported by clubmembers can be distilled into the following broad categories:

• The capacity and speed of electronic, digital communication [Firms 1, 3, 4,5, 8, 9, 10, 12, 13 and 15]

• Reliance on back-office software [Firms 2, 11 and 12]

• The growth of network computing [Firms 2 and 3]

• Computer-aided design [Firm 3]

• Internet use for information purposes, resource planning and releasingdemand forecasts [Firms 3, 4, 7 and 8]

• Greater connectivity to customers and suppliers [Firms 8, 10, 14 and 15]

• Shift towards process-based manufacture and “pull” production [Firm 15]

• Logistics [Firm 15]

• Online procurement and sales [Firms 6 and 15]

• Supply chain synchronisation [Firm 15]

• Customer requirements [Firms 6, 7 and 15]

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BOX 11.3: How Has The New IT Changed The Way In Which Your Firm DoesBusiness?

• Firm 1: “Strong focus on electronic communications”.

• Firm 2: “Reliance on computers has increased. Networks, emails, ERP systems,etc.”.

• Firm 3: “Reliance and dependency on computer systems mainly for communication,design, resource planning, etc.”.

• Firm 4: “E-mailing of technical data... Internet: release demand forecasts”.

• Firm 5: “Email – internal and external communication has improved. Overseascommunication has increased. Found a new supplier on the Internet”.

• Firm 6: “Customers are requiring internet connection to provide order information.Some overseas purchasing is done by email”.

• Firm 7: “New customer requirements…Internet: speed, cutting costs, planning andforecasting”.

• Firm 8: “Use of Internet to access company profiles…communication (email)…resource planning…collaboration with world class suppliers”.

• Firm 9: “A whole new way of communicating…a whole new process of computerliteracy”.

• Firm 10: “Accessible to customers, connectedness…overcome time and spaceconstraints in communication…real-time communication”.

• Firm 11: “Inventory control via MRP system”.

• Firm 12: “Accuracy of data and speed … ERP consolidated into sales companiesacross 3 manufacturing sites”.

• Firm 13: “E-mail, Internet … improved communication links with overseascompanies”.

• Firm 14: “Better links with OEMs”.

• Firm 15: “Faster rate of change and pace of business. Closer association withsuppliers. Supply chain synchronisation. Shift towards “pull” rather than “push”production. Process focus rather than functional silos. Increasing need and ability tofulfil customer wants. Additional sales channel. Use of e-mail in all relationships.Online procurement in export markets. Online sales and stock visibility in P&A.Logistics tracking. Vehicle tracking. Faster problem resolution with source plants”.

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11.8 Use Of E-Business Technologies In Supply ChainIntegration

TABLE 11.6: E-Business-Enabled Supply Chain Management

RESPONSE Frequency PercentYes 5 33.3No 10 66.7

TOTAL 15 100.0

Table 11.6 reveals that only 33.3% of club members currently use e-businesstechnology for some supply chain management purposes. It is important tostress however that the aforementioned firms do not have a Web-basedintegrated supply chain in operation. Rather these 5 firms are using IT for somesupply chain functions only. The other 10 firms claim that they are not currentlyusing IT for any supply chain management functions. This means that two-thirdsof the respondents (66.7%) are not currently reaping any of the potential benefitsof e-business-enabled supply chain integration (see section 5.3).

TABLE 11.7: Do Your Suppliers’ Have Access To Real-Time Information Of YourCompany’s Sales And Stock Levels?

RESPONSE Frequency PercentYes 1 6.7No 14 93.3

TOTAL 15 100.0

Table 11.7 shows that 93.3% of club members’ suppliers do not have access toreal-time information of club members’ sales and stock levels. Suppliers’ benefitenormously when they have online access to their customers’ productionschedules and sales data, because it enables them to proactively plan thevolume and timing of the orders. Dell Computer’s Internet-based supply chainmanagement regime is an apposite example of this trend (see Section 5.4).

TABLE 11.8: Are Your Firm’s Internal Operations Electronically Integrated WithThat Of Your Business Partners, Customers And Suppliers?

STAKEHOLDERS No YesCustomers 80.0% 20.0%Business Partners 86.7% 13.3%Suppliers 86.7% 13.3%

Table 11.8 reveals that the vast majority of club members’ internal operations arenot electronically integrated with that of their business partners (86.7%), suppliers(86.7%) or customers (80%). With e-business, the potential benefits come notjust from speeding-up and automating a company’s own internal processes butfrom its ability to spread the efficiency gains to the business systems of its

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suppliers and customers. The ability to collaborate, form alliances and networks– to draw on the competencies of supply chain partners - may be just as much ofa competitive advantage as the ability to deploy the technology itself.

TABLE 11.9: Does Your Company Have The E-Business Capacity To Access YourSuppliers’ Production Capacity, Available Inventory, Lead Times And DeliveryFlexibility?

VARIABLES No YesProduction Capacity 80% 20%Available Inventory 80% 20%Lead Times 80% 20%Delivery Flexibility 80% 20%

Table 11.9 reveals that only 20% of club members possess the e-businesscapacity to access their suppliers’ production capacity, available inventory, leadtimes and delivery flexibility. This is an important finding, since one of thefundamental changes supposedly stimulated by the Internet is the new dynamicway in which manufacturers across industry will deal with their suppliers and sub-contractors. Moreover, effective communications and alliances are essential forrapid response to competition. It appears that the vast majority of club membershave not yet implemented networked applications to connect automatically totheir supply chain partners. As a result, the potential benefits of breakinginformation barriers within a company (see Table 11.10) and the elimination ofinformation barriers between companies (see Tables 11.7, 11.8, 11.9, 11.11 and11.12) remains untapped.

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TABLE 11.10: Is The Information Provided Within Your Company’s InternalOperations Electronically Linked?

RESPONSE Frequency PercentYes 10 66.7No 5 33.3

TOTAL 15 100.0

A third of club members are still not using electronic technologies andinfrastructure to connect their internal operations and processes throughautomation. Their internal processes are largely function-driven (i.e. the silomentality), to the point where few, if any, of the divisions talked to one another. Ifa firm’s back-end systems are not fully operational and linked, it faces theprospect of damage to its reputation and customer relationships. In addition, thelack of comprehensive networking between processes is a formidableimpediment to facilitating communications inside the company by sharingknowledge between units, and tying business processes together. Thus makingit difficult for companies to empower their employees (including remoteemployees), customers and partners with the quick delivery of mission-criticalinformation.

An integrated electronic data management system to access, interrogate andevaluate critical product and process data gives a company a unique competitiveadvantage over other automotive firms. In this way companies gain control of allproduct and process information shared by cross-functional teams, includingcompany personnel, suppliers, partners and customers. In other words,information barriers between different systems and departments dissolve, thusstrengthening decision-makers (at all levels of the organisation) ability to betteralign with the overall organisational strategy and initiatives. In order for pertinent,and accurate information to be accessible at the coal-face, it is claimed that ITlegacy systems will need to be Web-enabled and tightly integrated.

TABLE 11.11: The Extent To Which Your Company’s Internal Operating SystemsAre Integrated With External Electronic Networks?

INTERNALSYSTEMS

NotIntegrated

MarginallyIntegrated

Integrated VeryIntegrated

Production 73.3% 13.3% 0.0% 13.3%Design 46.7% 40.0% 6.7% 6.7%Marketing 60.0% 20.0% 13.3% 6.7%Purchasing 60.0% 26.7% 6.7% 6.7%Logistics 46.7% 33.3% 13.3% 6.7%

Table 11.11 shows that the majority of respondents stated that their internaloperating systems [i.e. design (86.7%); purchasing (86.7%); production (86.6%);marketing (80%); and logistics (80%)] are either not integrated or are marginallyintegrated with external electronic networks. An e-business, it is argued, must be

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able to integrate and streamline its entire operation – from the storefront to thecall centre, from suppliers to its warehouse, and from distribution channels to thecustomers. Only then will it be possible to unify all forms of relevant informationfrom both inside and outside the enterprise into a single intelligent system, toadvance competitiveness. By integrating processes both up and down thesupply chain, club members will, theoretically, be able to provide products andservices faster and cheaper than before, and take advantage of newopportunities to leverage competitive advantages.

TABLE 11.12: Does Your Company Require Suppliers To Make Use Of E-BusinessTechnologies?

RESPONSE Frequency PercentYes 4 26.7No 11 73.3

TOTAL 15 100.0

Only 26.7% of club members claimed to put pressure on their suppliers to makeuse of electronic communication links, particularly EDI. The pressure placed onsuppliers to adopt IT is normally exerted by the OEMs and 1st tier suppliers intheir supplier development programmes. Thus hinting at some form of IT“governance” in the supply chain by dominant firms who provide strategic andorganizational leadership for lower-end network participants (i.e. lower-tiersuppliers).74 One component manufacturer in the Eastern Cape lamented that aproject geared to encouraging suppliers to make greater use of electroniccommunication links “never got off the ground despite NAAMSA75 andNAACAM76 support”.

TABLE 11.13: Does Your Company Use E-Business Technology For B2B Trade?

TYPE OF E-TRADE No YesB2B Selling 53.3% 46.7%B2B Procurement 80.0% 20.0%B2C Selling 93.3% 6.7%

Despite the highly publicised rise of B2B trading exchanges, it is clear from Table11.13 that the majority of club members (80%) are not yet using e-business toolsfor online purchasing, although 46.7% of respondents claimed that they engagein some form of online B2B selling. Only one club member is involved in B2Cselling. The little B2B e-commerce which is taking place is occurring primarilythrough EDI-type networks, rather than through Internet-based systems.

74 We use the term “governance” to refer to the key actors (i.e. the locus of power and control) in the valuechain who shape the e-business profile of particular participants by exerting pressure on them to upgradetheir IT capabilities. For a more detailed discussion see Gereffi (2000).75 National Association of Automobile Manufacturers of South Africa.76 National Association of Automotive Component and Allied Manufacturers.

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TABLE 11.14: Does Your Company Outsource Non-Core Functions?

OUTSOURCE TO: No YesSmall/Micro Firms 60% 40%Emerging Black Contractors 60% 40%

From a development perspective, sub-contracting relationships are particularlyimportant for small and micro firms whose growth and long-term survivaldepends on their capacity to leverage sub-contracting networks. Table 11.14above shows that only 40% of club members outsource non-core functions tosmall/micro firms and emerging black contractors. The functions outsourcedconsist mainly of services such as catering, cleaning, packing and security, aswell as some low-tech manufacturing and minor sub-assembly work.

TABLE 11.15: When Awarding Contracts to Small/Micro Firms And EmergingBlack Contractors Does Your Company Consider The E-Business Capacity ofSuch Firms?

RESPONSE Frequency PercentYes 0 0No 15 100

TOTAL 15 100

We were particularly interested in finding out whether small and micro firms’ e-business capabilities are a factor in enabling them to engage in sub-contractingrelationships with club members. None of the club members, however, considerthe e-business capacity of small companies when they award outsourcingcontracts. This relates to the fact that only peripheral activities are outsourced.Also the chances of small and micro enterprises actually being Web-based andengaging in B2B e-commerce are pretty low, more so, considering that the leadfirms in the value chain are themselves only beginning to become aware of thepotential of e-business and the Internet.

TABLE 11.16: Does Your Company Seek External Advice From IT Research AndAdvisory Firms?

RESPONSE Frequency PercentYes 13 86.7No 2 13.3

TOTAL 15 100.0

A significant percentage of club members (i.e. 86.7%) use IT research andadvisory companies. This is not surprising considering the confusing array of IToptions available on the market. When there is uncertainty and doubt, clubmembers tend to seek validation for information technology strategies.Interviews with senior management and conversations with key informantssuggested that in their eagerness to adopt new e-business strategies, many firms

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often find themselves dragged backwards by the very technologies they employsimply because of a lack of research to ensure the applications used areimplemented effectively.

TABLE 11.17: Does Your Company Have An In-House IT Department?

OPTIONS Frequency PercentIn-House IT Department Only 4 26.7IT Vendors Only 3 20.0Both 7 46.7Neither 1 6.7

TOTAL 15 100.0

Table 11.17 reveals that in-house IT departments are solely responsible for26.7% of club members’ IT operations. Further, 20% of club members only useIT vendors for their IT systems. A substantial percentage (i.e. 46.7%) of clubmembers use both an in-house IT department as well as IT vendors for managingtheir IT requirements. One club member uses neither an in-house IT departmentnor does it sub-contract its IT operations. In this small company, the ManagingDirector is responsible for the company’s IT operations. A breakdown of theseapproaches is presented below:

• In-house IT unit only (26.7% of club members): The company’s ITdepartment buys the hardware and software required for e-business andinjects the skills internally to put the system together. The success ofsuch a strategy will depend in no small measure on the complexity of theproject and the level of skill retained in-house.

• IT vendors only (20% of club members): The company has no ITdepartment, it buys in the technology and expertise it wants from theoutside. The enterprise uses an IT vendor to provide a full, integratedend-to-end IT service capability. This is probably an ideal strategy for asmall company with a low IT skills base.

• Combination of in-house IT department and IT vendors (46.7% of clubmembers): Acquiring some or all of the IT and associated services fromone or more service providers, but managing the process in-house.

• Neither IT vendor nor in-house IT department (6.7% of club members):Very few club members are capable of going it alone into e-businesswithout any outside help from an experienced, reputable IT consultancyand vendor. This is especially true when the e-business strategy isevolving from the “basic” to the more complex, like integrating legacy(especially circuit-based) systems and interconnecting networks.

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11.9 Digital Exchange Networks

TABLE 11.18: Are You Aware Of Any Joint Internet Initiative In The AutomotiveIndustry?

RESPONSE Frequency PercentYes 10 66.7No 5 33.3

TOTAL 15 100.0

Most of the club members (i.e. 66.7%) claimed to be aware of Internet-basedtrading networks in the automotive industry. This notwithstanding, one third ofclub members reported that they were unaware of the development of Internettrading hubs in their sector.

TABLE 11.19: Is Your Company Linked To Any Internet Initiative For SupplierInteractions?

RESPONSE Frequency PercentYes 7 46.7No 8 53.3

TOTAL 15 100.0

Only 46.7% of club members are linked to one or more Internet-basedprocurement platforms. Unfortunately, club members were not yet in a positionto openly discuss their links with Internet-based procurement platforms.Resource constraints notwithstanding, we plan to explore this issue with clubmembers in the next phase of the research programme.

TABLE 11.20: Assessment Of The Potential Benefits Of An Internet-BasedIntegrated Procurement System

POTENTIAL BENEFITS NotBeneficial

MarginallyBeneficial

Beneficial VeryBeneficial

Set Standards 13.3% 26.7% 6.7% 53.3%Cut Costs 6.7% 33.3% 33.3% 26.7%Speed Up The PurchasingProcess Between Manufacturer& Supplier

13.3% 20.0% 46.7% 20.0%

Value Chain Integration 20.0% 33.3% 26.7% 20.0%Increase Operating Efficiencies 26.7% 26.7% 40.0% 6.7%Improve Quality 26.7% 26.7% 40.0% 6.7%

As highlighted in Table 11.20 above, club members expect that the biggestbenefits (i.e. beneficial and very beneficial columns) of digital automotive partsexchanges are likely to be: speedy transactions (66.7%); the setting of standards(60%); procurement cost savings (60%); value chain integration (46.7%); andquality improvements (46.7%).

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TABLE 11.21: What Are The Potential Disadvantages Of An Internet-BasedIntegrated Procurement System?

POTENTIAL DISADVANTAGES YesReduced Supplier Base 73.3%Monopoly 66.7%Privacy Concerns 66.7%Reduced Profits 26.7%Threat To Long-Term Strategic Alliances 26.7%

According to club members the main drawbacks of an online trading hub arelikely to be: a rationalisation of the supplier base (73.3%), monopoly (66.7%), andprivacy concerns (66.7%). The concerns of club members are by no meansunique. Similar drawbacks were attributed to Covisint (see Section 2.3).

TABLE 11.22: The Importance Of Openness And Trust In Electronic Trading Hubs

VARIABLE NotImportant

MarginallyImportant

Important VeryImportant

Trust 0.0% 6.7% 20.0% 73.3%Openness & Transparency 0.0% 6.7% 33.3% 60.0%

For electronic marketplaces to succeed in the automotive industry, 93.3% (i.e.important and very important columns) of club members believed that openness,transparency and trust must be the hallmarks of a successful procurementplatform. These three elements are often lacking in the South African context.The new challenge, therefore, is how to manage openness, transparency, co-operation and trust in an electronic environment. There is a need for a “trustmodel” (i.e. trust formulas and security policies) that provides a high level ofconfidence.

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10.11 Benefits Of E-Business Tools

TABLE 11.23: Advantages Of E-Business Tools

BENEFITS NotBeneficial

MarginallyBeneficial

Beneficial VeryBeneficial

Reduce Cost of Information 13.3% 6.7% 40.0% 40.0%“Other” 0.0% 20.0% 40.0% 40.0%Improvement of InventoryOperations

6.7% 20.0% 60.0% 13.3%

Access International Markets 26.7% 26.7% 33.3% 13.3%Increase Market Access 33.3% 20.0% 33.3% 13.3%Improve Competitive Position 13.3% 40.0% 40.0% 6.7%Increase Revenue 26.7% 53.3% 13.3% 6.7%Increase Productivity 20.0% 46.7% 26.7% 6.7%Supplier Information Exchange 20.0% 33.3% 40.0% 6.7%Attract New Investment 73.3% 13.3% 6.7% 6.7%The Shortening of Order-Ship-BillCycles

33.3% 13.3% 46.7% 6.7%

Reduce Procurement Costs 53.3% 26.7% 20.0% 0.0%

For club members, the major benefits (i.e. beneficial and very beneficial columns)of adopting e-business tools for their companies include: reducing the cost ofinformation (80%); “other” (80%); inventory control (73.3%); the shortening oforder-ship-bill cycles (53.4%); supplier information exchange (46.7%);improvement in competitive position (46.7%); penetrating international markets(46.6%); and increasing market access (46.6%). The “other” box includesbenefits such as lower costs, greater value, speed combined with flexibility, andimproved decision making and execution. As already discussed in previoussections (especially Section 5.3) of this report, these are hypothetical benefits. Itis important to bear in mind that e-business is still in its initial phase in the SouthAfrican automotive industry.

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11.11 Barriers To The Adoption Of E-Business ToolsTABLE 11.24: E-Business Obstacles

INHIBITORS Frequency PercentLow use of e-business by customers & suppliers 13 86.7More pressing corporate priorities 10 66.7Security concerns 9 60.0Lack of accepted standards 8 53.3IT rapidly changing & proliferating 8 53.3Senior executives who do not support IT 8 53.3Lack of e-business skills 8 53.3Structural limitations 8 53.3Uncertainty over the returns which e-business will deliver 8 53.3Large & uncertain costs 7 46.7Ill-informed management 6 40.0Difficulties with finding & keeping IT staff 6 40.0Organisational constraints 5 33.3

Club members mentioned a number of obstacles to e-business transformation:senior executives who do not support IT (53.3%); lack of e-business skills(53.3%); structural limitations relating to shortcomings of the Public Internet(53.3%); uncertainty over the returns which e-business will deliver (53.3%); alack of clear understanding of the potential of the Internet on the part of key top-and middle-level managers (40%); and organisational constraints (33.3%).

A significant proportion of respondents (53.3%) are concerned about keeping upwith the rapidly burgeoning and changing IT, with information overload and withchanging business models. Other barriers to the adoption of e-businessmentioned by club members, include: the current low use of e-businesstechnologies by customers and suppliers (86.7%); more pressing corporatepriorities (66.7%); lack of accepted standards (53.3%); the large and uncertaincosts77 of implementation (46.7%); and difficulties experienced with finding andkeeping experienced and qualified IT staff (40%).

The concern that the strategic information of a company could be leaked to itscompetitors has been raised by 60% of club members. Club members alsomentioned that proprietary information could be vulnerable to hacking andviruses. However, technology that allows for the creation of “firewalls” ofconfidentiality are now available. Also on the market are state-of-the-artencryption and security features to protect a company from hackers and preserveconfidentiality. To be confident of secure communications, a company will needto invest in data integrity, authentication of identity and data confidentiality.Virtual Private Networks (VPNs) are another solution to the security problem.VPNs use the Internet as a backbone through which companies can conduct

77 The costs would include: hardware, software, investment in new business processes, consultants fees andthe training of employees.

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secure communications and business with branches, remote employees andbusiness partners. Although VPNs use the Public Internet, they are rendered“virtually private” through security technologies such as encryption.

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11.12 The Impact Of E-Business Technologies On The Firm

TABLE 11.25: Effects Of E-Business Technologies On The Firm

VARIABLES N/A MarginalNegativeImpact

MarginalPositiveImpact

ModeratePositiveImpact

StrongPositiveImpact

Design 20.0% 0.0% 6.7% 33.3% 40.0%Operations/Logistics 20.0% 0.0% 13.3% 26.7% 40.0%Production Systems 20.0% 0.0% 26.7% 26.7% 26.7%Relationships With YourCustomers

6.7% 0.0% 33.3% 40.0% 20.0%

Attitudes TowardsPartnerships & Collaboration

46.7% 0.0% 26.7% 13.3% 13.3%

Organisation Structure &Management

26.7% 0.0% 40.0% 20.0% 13.3%

Attitudes TowardsOutsourcing

53.3% 0.0% 13.3% 26.7% 6.7%

Interaction With Suppliers 26.7% 0.0% 40.0% 13.3% 6.7%Marketing 33.3% 0.0% 33.3% 26.7% 6.7%Competitiveness 20.0% 0.0% 46.7% 26.7% 6.7%Profits 33.3% 6.7% 33.3% 26.7% 0.0%Value Chain Integration 26.7% 0.0% 53.3% 20.0% 0.0%

The impact of e-business is profound because of the potential scale of value thatit adds to any business. Club members were asked to rate the impact of e-business tools on a number of predetermined variables in terms of their ownfirm’s experience. Only one club member reported a marginal negative impact onone variable (i.e. “profits”). No moderate negative, strong negative or neutralimpacts of e-business technologies were reported, therefore these columns havebeen omitted from Table 11.25.

Table 11.25 above shows where club members are extracting the most value(moderate positive impact and strong positive impact columns) from e-business tools:viz. design (73.3%); operations/logistics (66.7%); managing customerrelationships (60%); and production systems (53.4%). Supply chain issues likeoutsourcing (33.4%); collaboration and partnerships (26.6%); interaction withsuppliers (20%); and value chain integration (20%) have not recorded highdegrees of positive impact. This is mainly because firms are not using e-business tools for supply chain applications, hence the high “not applicable”response for variables such as outsourcing (53.3%); collaboration andpartnerships (46.7%); interaction with suppliers (26.7%); and value chainintegration (26.7%).

Table 11.27 below indicates that only 33.4% (successful and very successful rows)of club members consider the adoption of e-business in their companies as a“success”. A substantial 60% of club members experienced a mixed outcome,

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the implementation of e-business in their enterprises can only be described as“partially successful”. Interestingly, none of the club members described theearly stages of their e-business project as being a “failure”. While this is aninteresting observation, we cannot read too much into it, considering the incipientand incomplete nature of e-business adoption in the two clubs. Moreover, it isonly over time that more meaningful assessments of the success of e-businesscan be made, using more appropriate, precise measurement techniques.

TABLE 11.27: Degree Of Overall Success In The Implementation Of E-BusinessTechnologies

DEGREE OF SUCCESS Frequency PercentageVery Successful 1 6.7Successful 4 26.7Partially Successful 9 60.0A Failure 0 0.0A Total Failure 0 0.0Not Applicable 1 6.7

TOTAL 15 100.0

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11.13 Projections Of E-Business Growth

We asked each club member to provide us with some projections of e-businessgrowth in the year 2005 on a number of predetermined variables. The objectiveof this exercise was to gain an understanding of each club member’s impressionof the growth prospects of e-business, the uptake of e-business in the automotiveindustry generally, as well as how sanguine they are of the likely impact of e-business on their own companies. We have already shown that the clubmembers have been slow to adopt the new generation of network-based IT (seeSection 11.3). The results of the forecasting exercise are reported in Tables11.27 to 11.32 below.

TABLE 11.27: Projections Of E-Business Growth In 2005 (% Of PurchasingOperations Put On The Internet)

% Of PurchasingOperations Put On

The Internet In 2005

Frequency Percent ValidPercent

CumulativePercent

40% 2 13.3 14.3 14.350% 2 13.3 14.3 28.660% 2 13.3 14.3 42.980% 3 20.0 21.4 64.385% 1 6.7 7.1 71.490% 1 6.7 7.1 78.695% 2 13.3 14.3 92.9

100% 1 6.7 7.1 100.0Missing Cases 1 6.7

TOTAL 15 100.0

Mean - 71.79Standard deviation - 21.18Range - 60.00Percentiles

25 - 50.0050 - 80.0075 - 91.25

Twelve club members stated that in 5 years time 50% or more of their purchasingoperations will be put on the Internet. The average projection was 71.8%. Thisis quite a substantial increase on current levels, but it is important to bear in mindthe present low base.

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TABLE 11.28: Projections Of E-Business Growth In 2005 (% Of Total BusinessWhich Will Be Web-Based)

% Of Total BusinessWhich Will Be Web-

Based In 2005

Frequency Percent ValidPercent

CumulativePercent

0% 1 6.7 9.1 9.110% 2 13.3 18.2 27.320% 1 6.7 9.1 36.450% 1 6.7 9.1 45.560% 1 6.7 9.1 54.570% 2 13.3 18.2 72.780% 1 6.7 9.1 81.890% 1 6.7 9.1 90.9

100% 1 6.7 9.1 100.0Missing Cases 4 26.7

TOTAL 15 100.0

Mean - 50.91Standard deviation - 35.34Range - 100.0Percentiles

25 - 10.0050 - 60.0075 - 80.00

Only seven club members forecasted that in 2005 at least 50% of their totalbusiness operations will be Web-based. The average projection was 50.9%, withfour club members not answering the question. It has already been arguedelsewhere that one of the biggest challenges that enterprises face today isopening applications to the Internet while integrating them with traditional back-end applications. Club members who do not integrate technology into the core oftheir business but decide instead to use technology as an ancillary or parallelbusiness, may experience difficulties in the Networked Economy. Thereforecentral to addressing New Economy challenges is to find a method for handlingWeb-based applications as an integrated part of the organisation. The benefitsof Web-based business are potentially large and wide-ranging that companieswhich ignore these opportunities might risk falling behind competitors that haveembraced them.

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TABLE 11.29: Projections Of E-Business Growth In 2005 (% Of SuppliesPurchased Through Web-Based Auctions)

% Of SuppliesPurchased ThroughGlobal Web-BasedAuctions In 2005

Frequency Percent ValidPercent

CumulativePercent

0% 5 33.3 35.7 35.75% 2 13.3 14.3 50.010% 1 6.7 7.1 57.115% 1 6.7 7.1 64.320% 2 13.3 14.3 78.630% 1 6.7 7.1 85.780% 1 6.7 7.1 92.995% 1 6.7 7.1 100.0

Missing Cases 1 6.7TOTAL 15 100.0

Mean - 20.00Standard deviation - 30.26Range - 95.00Percentiles

25 - 0.0050 - 7.5075 - 22.50

Twelve club members forecasted that their company will purchase 30% or less ofsupplies through global Web-based auctions in 2005.78 The average projectionwas 20%. This fairly low projection rate can be largely accounted for by twofactors: firstly, Web-based “spot” markets are still a new, experimental concept;and secondly, club members continued preference for engaging in extended-term contracts often lasting for a year or more. Using the Internet’s reach andubiquity to sell off perishable or time-sensitive stocks of goods and services, andcommodities which are amenable to public “spot” markets rather than beingtraded through extended-service contracts79, by auction is an increasing trend inthe e-business world.

Visteon, the Ford-owned components supplier, is already buying parts fromsuppliers at global web-based auctions. GE Appliances, the household goodsunit of the US conglomerate General Electric, is pushing all its suppliers to join itsonline purchasing system in a bid to cut its US$ 3 billion annual materials budget.Moreover, Covisint, the giant Internet-based trade exchange, is currently in the

78 None of the club members are currently purchasing operating and manufacturing inputs through Web-based auctions.79 See The Economist, 21 October 2000.

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process of conducting its first auction, following successful pilots in September2000.80

TABLE 11.30: Projections Of E-Business Growth In 2005 (% Of Total Goods &Services Procured Through E-Business Technologies)

% Of Total Goods &Services Procured

Through E-BusinessTechnologies In 2005

Frequency Percent ValidPercent

CumulativePercent

50% 1 6.7 9.1 9.160% 4 26.7 36.4 45.575% 1 6.7 9.1 54.580% 2 13.3 18.2 72.790% 3 20.0 27.3 100.0

Missing Cases 4 26.7TOTAL 15 100.0

Mean - 72.27Standard deviation - 14.72Range - 40.00Percentiles

25 - 60.0050 - 75.0075 - 90.00

Club members appeared to be much more amenable to the idea of procuringgoods and services through the use of e-business technologies in 2005. Elevenclub members foresee their company procuring between 50 and 90% of theirgoods and services via e-business technologies. The average projection was72.3%.

80 www.ft.com

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TABLE 11.31: Projections Of E-Business Growth In 2005 (% Reduction In PaperInvoices)

% Reduction InPaper Invoices In

2005

Frequency Percent ValidPercent

CumulativePercent

40% 2 13.3 16.7 16.750% 1 6.7 8.3 25.065% 2 13.3 16.7 41.770% 2 13.3 16.7 58.380% 1 6.7 8.3 66.790% 2 13.3 16.7 83.3

100% 2 13.3 16.7 100.0Missing Cases 3 20.0

TOTAL 15 100.0

Mean - 71.67Standard deviation - 21.14Range - 60.00Percentiles

25 - 53.7550 - 70.0075 - 90.00

B2B commerce has traditionally been a routinised, paper-intensive process,which created inefficiencies for both buyer and seller. By moving theprocurement process online, and removing paper from the informationinterchange pipeline, reliability and speed is likely to improve. The IT forpaperless transactions is at hand for most business processes, thus removingmost of the costs of generating and circulating paper, at least in theory.Unsurprisingly, twelve club members forecasted a substantial reduction in paperinvoices of between 40 and 100% in 2005 as a result of the adoption of e-business tools. The average projection was 71.7%. Digital technology canpotentially free workers from slow, inflexible and costly paper-based businessprocesses. Thus creating time for more productive work, and reducingadministrative costs.

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TABLE 11.32: Projections Of E-Business Growth in 2005 (% Of customers AndSuppliers That Will Have Access To My Company’s Real-Time Sales And InventoryData)

% Of Customers AndSuppliers That Will HaveAccess To My Company’s

Real-Time Sales &Inventory Data In 2005

Frequency Percent ValidPercent

CumulativePercent

10% 2 13.3 14.3 14.320% 2 13.3 14.3 28.625% 1 6.7 7.1 35.728% 1 6.7 7.1 42.940% 1 6.7 7.1 50.050% 2 13.3 14.3 64.360% 1 6.7 7.1 71.475% 1 6.7 7.1 78.680% 2 13.3 14.3 92.990% 1 6.7 7.1 100.0

Missing Cases 1 6.7TOTAL 15 100.0

Mean - 45.57Standard deviation - 27.82Range - 80.00Percentiles

25 - 20.0050 - 45.0075 - 76.25

Only seven club members foresee 50% or more of their customers and suppliershaving access to their company’s real-time sales and inventory data in 2005.The average projection was 45.6%. It seems that club members are reluctant tointegrate their suppliers and customers into their online operations. As a result,they will not be able to capture, analyse and exchange real-time information withthe different stakeholders. Moreover, from a supply chain managementperspective, e-business entails a move from independence to interdependence,and the concomitant building of an extended virtual enterprise. It is assumed thatby establishing such deep process interdependencies, sellers and buyers eachbenefit by becoming locked into progressive long-term relationships. It appearsas if this vision has not yet filtered through to the majority of club members.

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APPENDIX 1: E-BUSINESS QUESTIONNAIRE

Section I: General

1. Does your company have an e-business strategy?YesNo

Section II: Key E-Business Drivers

1. What are the key drivers for e-business in your sector? [Options: 1=Not important,2=Marginally important, 3=Important, and 4=Very important.]

Key E-Business Drivers RatingGlobalisationCustomer RequirementsStandards & ProtocolsSpread of the InternetTrade LiberalisationAcquisitions & Mergers (Consolidation)Closer Integration with SuppliersAgilityBusiness FlexibilityIncreased CompetitivenessConnectivityOther (please specify):

2. Has the traditional ways of conducting business changed in your sector during the last 3years?

YesNo

3. If yes to Q2, please explain how?__________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

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4. What are your immediate objectives and goals?________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Section III: E-Business Perceptions

Please state whether you agree or disagree with the following statements.

1. In 3 years my company will be more reliant on e-business.Strongly Agree Agree Neutral Disagree Strongly

Disagree

2. Exploiting the full potential of the Internet is a high priority for my company.Strongly Agree Agree Neutral Disagree Strongly

Disagree

3. Companies in my sector without e-business will be at risk of going out of business.Strongly Agree Agree Neutral Disagree Strongly

Disagree

4. E-business is a serious competitive threat to my company.Strongly Agree Agree Neutral Disagree Strongly

Disagree

5. As online intermediaries emerge in business-to-business (B2B) trade and more largecompanies shift their procurement online, suppliers are at risk of being de-listed (shut out) byor disintermediated from their customers.

Strongly Agree Agree Neutral Disagree StronglyDisagree

6. E-business and e-commerce are essentially the same.Strongly Agree Agree Neutral Disagree Strongly

Disagree

7. E-business is more about technology than about strategy.Strongly Agree Agree Neutral Disagree Strongly

Disagree

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8. E-business companies must be willing to bring suppliers and customers deep into theirprocesses and to develop a similar understanding of their business partners’ processes.

Strongly Agree Agree Neutral Disagree StronglyDisagree

Section IV: Supply Chain Management

1. Does your company use e-business technologies for supply chain management/integration?YesNo

2. Do your suppliers have access to real-time information of your company’s sales and stocklevels?

YesNo

3. Are your firm’s internal operations electronically integrated with that of your:Yes No

CustomersBusiness PartnersSuppliers

4. Does your company have the e-business capacity to access your suppliers’:Variable Yes No

Production CapacityAvailable InventoryLead TimesDelivery Flexibility

5. Does your company require its suppliers to make use of e-business technologies (such asEDI)?

YesNo

6. Does your company outsource non-core functions to:Yes No

Small/Micro FirmsEmerging Black Contractors

7. If yes to Q6, what type of non-core functions?____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

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8. If yes to Q6, when awarding contracts to small/micro firms does your company consider thee-business capacity of such firms in the selection process?

YesNo

9. Does your company seek external advice from IT research and advisory firms?YesNo

10. Does your company have an in-house IT department or do you outsource your e-businessoperations?

Yes NoIn-House IT DepartmentIT Vendors

11. Are you aware of any online auto-supplier networks (e.g., DaimlerChrysler, GM, and Fordare awaiting regulatory approval in the US and Europe to set up Covisint, their joint Internetpurchasing exchange)?

YesNo

12. Is your company linked to any internet initiative for supplier interactions?

YesNo

13. Please rate the likely benefits of the recent moves by Daimler-Chrysler, Ford & GM to puttheir purchasing operations on the Internet: [1=Not beneficial, 2=Marginally beneficial,3=Beneficial, and 4=Very beneficial.]

Benefits RatingCut CostsValue Chain IntegrationIncrease Operating EfficienciesSpeed up the Purchasing Process between Manufacturer & SupplierImprove QualitySet StandardsOther (Please specify):

14. What are the disadvantages of DaimlerChrysler, Ford & GM’s proposed online integratedprocurement system?

Yes NoMonopolyPrivacy ConcernsReduced ProfitsReduced Supplier BaseThreat to Long-Term Strategic AlliancesOther (Please specify on blank page)

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15. For electronic supply chains to succeed, how important is openness and trust: [1=Notimportant, 2=Marginally important, 3=Important, and 4=Very Important.]

Variable RatingOpenness & TransparencyTrust

Section V: IT Audit (Use & Non-Use of E-Business Technologies)

1. Does your company make use of e-business technologies?YesNo

2. Your company uses e-business technologies for: (Please tick the appropriate box)E-Commerce Yes No

Business-to-Business (B2B) ProcurementB2B SellingBusiness-to-consumer (B2C) SellingOther (Please specify):

3. What IT/e-business technology investments has your company made so far? (Please tick theappropriate box). Also indicate the year in which the particular IT was introduced in yourcompany.

IT Yes No YearEnterprise Resource Planning (ERP)Material Requirements Planning (MRP)Manufacturing Resource Planning (MRP II)Electronic Data Interchange (EDI)Manufacturing Execution Systems (MES)Computer Aided Design (CAD)Customer Relationship Management (CRM)Supply Chain Management (SCM)Enterprise Application Integration (EAI)InternetIntranetExtranetOther (Please specify):

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4. For what purposes do you use e-business tools:Purpose Yes No

DesignInventory ManagementManagement of Distribution ChannelsOrder ProcessingProductionLogisticsEngineering/TechnicalServices & SupportMarketingSalesProcurementApplication IntegrationOther (Please specify):

5. Is the information provided within your company’s internal operations electronically linked(i.e., do they “talk” to each other)?

YesNo

6. Please rate the extent to which the internal operating systems (such as production, design,logistics, etc.) in your company are integrated with external electronic networks (such as theInternet)? [Options: 1=Not Integrated, 2=Marginally integrated, 3=Integrated, and 4=Veryintegrated.]Internal Systems Rating

ProductionDesignMarketingPurchasingLogisticsOther (Please specify):

7. Does your company make use of enterprise application integration tools to connect ERP,EDI, etc. systems to the Internet?

YesNo

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Section VI: Benefits & Obstacles

1. Please rate the following benefits of e-business technologies in terms of your own company’sexperience: [1=Not beneficial, 2=Marginally beneficial, 3=Beneficial, and 4=Verybeneficial.]

Benefits RatingImprove Competitive PositionAccess International MarketsIncrease RevenueIncrease ProductivityIncrease Market AccessReduce Cost of InformationSupplier Information ExchangeAttract New InvestmentReduce Procurement CostsThe Shortening of Order-Ship-Bill CyclesImprovement of Inventory OperationsOther (Please specify):

2. Please rate the following obstacles/barriers to the adoption/use of e-business technologies interms of your own company’s experience: [1=Not a constraint, 2=Marginal constraint, 3=Moderate constraint, and 4= Strong constraint.]

Obstacles/Barriers RatingConcerns About SecurityLegal & Liability ConcernsLow Supplier E-Business UseHigh Cost of Computing & Networking TechnologiesLimited Knowledge of E-Business ModelsLimited Knowledge of the New ITUnconvinced of the Benefits of E-BusinessFirm Computerisation Too LowLimited Network Bandwidth (Internet)Unreliable/Inconsistent Network (Internet)Other (Please specify):

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Section VII: Impact of E-Business Technologies on the Firm

1. Please indicate whether e-business technologies have had a positive or negative impact on thefollowing variables, and rate the strength of the impact: [1=Marginal impact, 2=Moderateimpact, and 3= Strong impact.]

Variables Positive Impact Negative Impact RatingProduction SystemsDesignOperations/LogisticsInteraction with SuppliersMarketingCompetitivenessProfitsValue Chain IntegrationAttitudes Towards OutsourcingAttitudes Towards Partnership &CollaborationOrganisation Structure & ManagementRelationships With Your CustomersOther (Please specify):

2. Has the new IT changed the way in which your firm does business?YesNo

3. If yes to Q2, please explain how?____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

4. Has e-business affected the way in which you interact with your suppliers?YesNo

5. If yes to Q4, please explain how?____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

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6. Please indicate whether the implementation of e-business technologies in your company wassuccessful or not.

VerySuccessful

Successful PartiallySuccessful

A Failure A TotalFailure

7. If the implementation was a failure, please could you explain why this was the case?__________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Section VIII: Delphi Projections of E-Business Growth

1. By 2005 _____% of my company’s purchasing operations will be put on the Internet.2. By 2005 _____% of my company’s business will be web-based.3. By 2005 my company will purchase _____% of its supplies through global web-based

auctions.4. By 2005 we expect to procure _____% of total goods and services through e-business

technologies.5. In 2005 we will reduce the number of paper invoices from _____% to _____% by

implementing e-business technologies.6. In 2005 _____% of suppliers will have access to my company’s real-time sales and inventory

data.