Even if the tools developed by both consortia and private
exchanges do overlap each over, it is necessary to identify the most
appropriate tools. As a matter of fact, it seems that Consortia are more
appropriate when it is possible to leverage technology costs across companies
in a given industry. In addition, they better suit companies when
cross-enterprise collaboration is needed to capture one given process benefits
such as airline spare parts inventories, collaborative planning or
forecasting.
Private exchanges are more appropriate when the company
benefit from a competitive advantage such as Boeing's product development
functionality. Private exchanges must also be considered when there is no
consortia put in place or when the consortia does offer the desired tools such
as DaimlerChrysler's supply chain networking tool.
4.1 Sustainability of Industry-sponsored marketplaces
and private exchanges
Industry-sponsored marketplaces and private exchanges seem to
be both sustainable. As a matter of fact, consortia and private exchanges have
developed or develop value-creating and customer-ready functionalities.
However, the success of these functionalities greatly depends upon the ability
to gain participants adoption and value demonstration.
Three key factors support the case for the sustainability of
industry-sponsored marketplaces. Firstly, the industry players must consider
that industry-sponsored marketplaces will create functionality vital to the
future of their industry. Secondly, industry-sponsored marketplaces have
learned from the failure of the public e-marketplaces and should not make
similar mistakes. Thirdly, industry-sponsored marketplaces are morphing their
models to respond to market requirements.
Industry-sponsored marketplaces can be considered as cheap as
a group. They usually focus on few key products in order to control technology
costs. They often hire more staff after the implementation of the exchange in
order to gain incremental revenues. The industry and systems expertise
developed combined with close partnerships with customers, results in tailored
made functionalities. Industrysponsored marketplaces learned from the public
marketplaces that they must control the burn rate, create real value while
minimizing the disruption brought about by change.
It seems that two years ago consortia were reduced to
off-line buying groups which only purpose was to aggregate the purchase volume
of several companies and then negotiating better pricing from suppliers. Today,
several consortia, including Covisint, do not aggregate purchasing volume
across.
As consortia main goal is to meet its client requirements,
they did not adopt an inflexible business model, but rather what we can call a
morphing model. As a matter of fact, they are setting the product development
plans, which are meeting their member needs. They also adjust their pricing
models, tailor customer service processes and levels to the requirements of
buyers and suppliers. For instance, Covisint develops and maintains broader
functionality dedicated to several value chain processes which are critical to
the automotive industry.
Even if private exchanges are developed and managed by large
and powerful companies, that does not grant success. As a matter of fact,
private exchanges have to compete for capital, best people and the top
management support. They must also have enough time to demonstrate the return
on investment and value created.
It seems that, development costs of the more complex
functionality should be covered by the savings obtained through the purchasing
functionnality (e.g reduced prices through auctions, reduced administrative
costs from catalogs, automated process flow tools). However, the cost savings
appear in the budgets of the business units purchasing goods while development
costs fall into the e-business organization's cost center. Consequently, it is
still difficult to demonstrate that these savings cover the development costs
of a complex functionality.
In order to survive, private exchanges must create value,
ensures the top management support, partner with business unit managers to
drive internal and external adoption. They must also make sure that they
continue to meet the needs of the business units
In order to justify embarking on an investment in exchange
functionality, either through a consortia or internally through a private
exchange, it is critical to understand the value-creation potential of an
exchange. It is impossible to outline a specific set of instructions for this
assessment, as exchanges vary as much as the companies and/or industries they
serve. We can, however, outline the key issues that must be addressed in such
an analysis.
Understanding of the value-creation potential of an exchange
is key to both consortia and private exchange. Firstly, it is essential to
determine to which processes the exchange should be dedicated. Then, it must be
showed that the exchange addressed the process in the best manner. Secondly,
value metrics must be provided. Thirdly, a comparison must be made between the
value provided and the development and management costs of the exchange. This
demonstration must help to evaluate if the exchange represents a profitable
investment opportunity.
4.2 Identification of the processes to be
addressed
In order to find out the value of an exchange, it is
essential to understand what value chain processes it will address. The above
scheme outlines the value chain processes that exchanges can address. It also
gives a list of the key value chain processes and sub processes that exchanges
may be dedicated to. When the company wants to join one existing consortia, it
is easy to determine if it meets the value chain processes. Indeed, the
consortia provides some existing functionality and a development plan for
future tools.
When creating a consortia or a private exchange, it is
essential to define the processes that should be addressed through the
exchange. At first, purchasing should be considered as it is a key process,
which does not require significant industry customization. As a consequence,
purchasing tools can be chosen quickly and installed. Then, they can generate
savings that can help to fund further exchange development.
Identification of the key industry's key pain points helps to
identify other processes.(see the above scheme). Pain points should be defined
as the process, which significantly impact costs, quality, or product value
from the customer point of view. For instance, Aeroxchange address a key pain
point of the aerospace industry, as the industry holds 55 billion dollars in
inventory. Aeroxchange allows spare parts inventory visibility. It facilitates
the finding of the right part faster for unscheduled maintenance. Thus, it
reduces administrative costs of finding and required inventory levels.
Therefore, airlines are impacted by Aeroxchange as if maintenance is quicker,
the number of delayed and cancelled flights decrease.
When the processes are identified, it is essential to
determine how well the processes can be addressed. We can say that companies
must evaluate the scope of this assessment. First of all, the company needs to
know if the consortia or software address the complete value chain or only
narrow segments of the process. If the consortia or software address only
narrow segments of the process, it is important to know if it addresses the
industry pain points. In fact, few companies provide tools which address all
the aspects of a given supply chain process. However, it does not mean that the
available tools are not valuable. It means that the first stage is to focus on
the most important components of the process and then to build out
functionality over time.
It is also important to consider how well the consortia or
software chosen address the process or subprocesses. In fact, most of the
software available have been developed with a generic manufacturing industry in
mind. Consequently, the software available must be considered as a starting
point from which companies can develop their solutions. That is the reason why
the functionality assessment should be detailed enough to identify the gaps
between the tool and the deployment which should be created by the user. For
instance, Aeroxchange was obliged to work with Oracle in order to incorporate
the needs of the
airline industry into the Oracle inventory management software.
Indeed, Aeroxchange needed to provide data on the part, its location, its owner
and its condition (new, refurbished, or requiring repair).
4.3 Value metrics to be adressed
In order to evaluate the value created by an exchange, it is
essential to understand the value of creation levers. The value levers, which
can be addressed by the exchange include revenue, costs, assts, risk, cycle
times, quality and customer services.
To assess the value created by an exchange, companies must
identify the functionality provided or to be provided in terms of the value
chain processes and sub processes. Then, for each sub process, companies must
identify the value creation levers that will be addressed.
For instance, a reverse auction tool will address "establish
terms," a sub process of the sourcing process, by allowing a company to request
bids from suppliers and receive bids resulting in a final offer at the end of
the auction period. In addition, the tool will help analyze the bids as well,
though the degree to which the tool can accomplish this depends on its ability
to incorporate non-price variables (product quality and functionality, delivery
time, payment terms, etc.) into its ranking of suppliers.
Additionally, the auction tool can be expected to address the
cost lever - reducing the purchase price of goods through increasing supplier
competition - and the cycle time lever - reducing the time it takes for price
negotiations to be finalized. To quantify the value of the auction tool, it is
necessary to estimate the impact on each of these value creation levers.
Savings in the range of 2 to 85 percent have been reported on reverse auctions.
Spend categories have been auctioned without achieving savings as well. A
reasonable approach to quantifying this value would be to assume for a spend
category that your organization has not yet auctioned and plans to, that
savings would approximate those achieved by other companies who have used the
tools to source the same or similar spend categories.
Additional savings from the short cycle time of negotiation
could arise from reduced use of procurement function resources or on-time
delivery of a commodity that would otherwise be late and cause production
downtime. Savings of this type should only be included in analysis if there is
a reasonable likelihood that they would be avoided through use of the tool.
Once the Sources of Value Framework has been used to estimate
the value of each exchange tool, you are ready for the next step in assessing
the value of the exchange - comparing costs to benefits.
4.4 Comparison between the development and management
costs
The costs of the exchange include:
- Software purchase and/or development, - Systems
integration,
- Project management,
- Staff training
- Change management costs.
Software and/ or development costs are obvious. In addition,
in order to transfer information from ERP or legacy systems, systems
integration costs are need. In order to ensure the exchange development project
management costs are also required.
Training costs are important as the staff must learn how to
use the tool. They must also understand the benefits of the tools in order to
change their work procedures smoothly. Change management costs should include
internal and external communication. The communication campaign must present
the benefits of the exchange, the analysis and the implementation steps
required to transition processes. As change management is a real challenge, it
must not be underestimated.
.
The above list of costs should help to identify the key cost
components. Obviously, this list is not exhaustive. For instance, private
exchanges will need to consider the costs of getting suppliers on board and
subsidizing their systems integration until they buy into the exchange's value
proposition.
4.5 The best practices
· Change process: the compulsory
partnership
In order to successfully manage the adoption of exchange
tools by companies or within an industry, leadership, communication and
implementation are essential. To that purpose, a partnership must be built
between the exchange, investor executives, and trading partner executive. This
partnership should allow to get the vision of the most appropriate tool, its
adoption and usage. Thus, it requires a clear, broad and targeted communication
on the exchange objectives and successes. Detailed implementation planning and
execution must be done, both within the exchange and between investors and
trading partners. Active members must believe that improving supply chain
efficiency and effectiveness is critical to their firm's longterm
competitiveness. The CEO needs to communicate this vision internally within his
or her organization and externally to suppliers and the broader business
community. Once the vision has been communicated, the CEO should set the
expectations within their organization that exchange functionality will be
leveraged as much as possible. The exchange should be used regularly rather
than selectively, unless there is a compelling reason not to use it. Lastly,
the CEO will need to approve exchange funding due to the magnitude of the
investment.
The next set of partners that consortia and private exchanges
should seek is senior management. Functional and business unit senior
executives have several rolls in managing the change process. They should
reinforce the CEO's vision that the exchange is key to the company's
competitiveness, and they should extend this vision into concrete goals and
guidelines for exchange use. Goals can be in terms of transaction volume
managed by the exchange or the number of employees who should be given access
to use the exchange for purchasing or other functions. Formal guidelines should
be developed to prescribe use of the exchange for functions that can be
executed through its tools more efficiently than through offline or through
other tools. Incentives for both executives in relevant roles and other
personnel within functions impacted by exchange tools should reinforce the
outlined goals.
Senior management must also play a key role in change
management. In order to drive participation, senior management should use its
personnel networks both within and outside the organisation. Internally,
managers should be reached out in order to ensure that they understand exchange
plans and functionality. Managers must also be actively involved in the setting
of tool requirements and improvement opportunities. Outside the company, senior
executives should communicate on the value created by exchange tools.
It seems that the senior executives must sit on the board of
the exchange in order to be highly involved in the development and evolution of
the exchange. As a matter of fact, they are responsible for the function that
the exchange is enabling. Consequently, they are able to set development
priorities and provide high-level functionality requirements. In addition, they
are directly able to ensure that exchange tools are used by their
organization.
In order to ensure that implementation plans are rolled out
effectively, middle-management level must be highly involved. The
middle-management level should help to map out the impact of exchange tools on
the current processes and operations. This input is critical as it should help
the exchange team to detail the tool requirements and therefore plan the
necessary organizational changes. Consequently, we can say that the exchange
team partnership with middle management is compulsory.
· A solid business model
Obviously, Consortia must adhere to basic business rules.
However, we must underline that the previous public e-marketplace business
model was to spend equity fast in order to achieve growth and boost IPO
valuations. As this model is no longer in practice, consortia must develop a
solid business model, which meet the needs of the investing companies and
trading partners.
In order to meet investor needs, the consortia must develop
appropriate tools, add value beyond the tools and provide quality customer
service. To that purpose, members should shape the planned functionality
portfolio, the development road map and the key requirements for each tool. The
members of the consortia or the corporate senior members should follow sessions
focused on this issue in order to list their requirements. Indeed, it should
ensure that the tools put in place meet the needs of the organizations. In
addition, work sessions with suppliers should help to identify key
functionalities from the supplier perspective. These various points of view
should ensure a timely implementation and adoption of the tools.
However, in the case of less complex functionality or
specific solutions, it is not necessary to acknowledge the opinion of all the
members. The decision making process should be speed when the number of points
of view is reduced. For instance, a sourcing event based on the spend of 4 to
6
participants may not achieve the purchase volume that a
broader group purchase would, but may facilitate developing a more narrow set
of specifications for a bid. The savings can still be significant, and
furthermore, demonstrated savings from aggregated sourcing events can be
replicated for other members.
· Adding value beyond the tools
The automation of processes and the transparency of
information provided by both consortia and private exchanges result in greater
efficiency and effectiveness of the value chain activities. Thus, they create
value. That is the reason why exchanges have recruited functional, industry and
systems experts. To that regard, it seems that consortia can leverage their
expertise in order to generate incremental revenue beyond the tools and round
out their service offerings. For instance several consortia complement auction
and eRFx tools with strategic services. To that purpose, sourcing industry
experts were hired. They were enabled to determine the most appropriate spend
categories through the understanding of the supply markets for identified
categories. They finally recommended the best sourcing event, which reduce the
total cost of the category.
Exchanges have also developed systems groups with knowledge
of the industry's systems and how to integrate them with other systems. The
systems groups expertise was used to "productize" the integration process to
enhance margins, and to provide consulting on a broader range of industry
systems issue. As revenue generation is not the key goal of private exchanges,
adding value beyond the tools remains important to ensure that business units
and trading partners have the support they need to implement exchange tools.
· Customer service
Customer service is essential as it can drive the adoption
and the transaction volume. It includes training, help desk, systems
integration and "consulting" services. Training implies the creation of
selfguided on-line modules, FAQs and on-site product overview sessions. The
help desk must provide responsive support. It means that it must provide
consistent quality in handling basic questions. Systems integration must ensure
that both buyers and sellers are brought on-line in a coordinated fashion. In
order to back up the other elements of customer service, deep functional,
industry or systems expertise is needed.
· Focusing on the value proposition
In order to create value and to drive adoption, the exchange
must focus on the needs of both buyers and sellers. This focus is even
important for private exchanges as the trading partners who have an expertise
of the processes organization might ensure that the exchanges tools create
value and drive out cost.
Providing security of pricing information, non-public trading
relationships and easy integration into the exchange are the basic ways to
provide value. They are compulsory when it comes to gain the participation of
trading partners.
Lastly, pricing should be in line with value capture. If the
investors will capture most of the benefits of current exchange tools, they
should pay for most of the costs. Many exchanges are charging trading partners
little if at all for either tool usage or integration (via a low-cost means
such as browser). In addition,
exchanges often provide value-added tools for trading partners.
For instance, they might encourage suppliers to use auction and eRFx tools to
reduce their costs.
· The burn rate management
In order to manage the burn rate, many exchanges focus on a
portfolio of functionality rather than trying to cover the entire industry
supply chain. They consider a few key tools, which were essential across their
membership base, their firm and the trading partners. They also make a balance
between the tools, which allows "quick wins" and "big wins".
As a matter of fact, quick wins such as auctions and eRFx
generate near-term member value, adoption and near-term revenue. Unlike "quick
wins", "big wins" are important tools which often focus on the industry pain
points. As well as quick wins they drive substantial value but they take longer
to develop and roll out. The balance between quick and big wins is essential as
they complete each of other. "Quick wins" revenues should fund day-to-day
operations and the more complex technology development. "Big wins" should
create value for the participants and sustain value beyond the impact of the
"quick win" tools.
In order to manage technology costs efficiently, it is also
interesting to partner with the best technology provides. They can help to
bring the products live faster through leveraging pre-existing tools.
Control of the burn rate also implies the control of the
costs of integration. Most of the consortia managed it through the development
of a portfolio of integration options such as browser-reliant or full-scale
system integration. These integration options are essential as they drive both
trial and adoption. As a matter of fact, suppliers are not willing to pay for
full integration when they participate to an auction. In addition, consortia
members often want to try some basic functionality before committing to the
cost of full integration. However, founding members in the need for specialized
tools will want deep systems integration, which allows to capture greater
functionality and cost savings.
Staffing costs is part of the burn rate control. It is quite
difficult to control these staffing costs while creating and quickly rolling
out multiple tools. That is the reason why a clear strategy must be put in
place. This strategy must focus on near-term functionality objectives meaning
that the staff must meet these needs quickly and efficiently. The staff must be
hired in response to revenue growth and not in preparation for it.
· Review of the internal processes
Review of the internal processes and reengineering of these
processes must be done before the implementation of an exchange. As a matter of
fact, process efficiency can not be reach if exchange tools are supposed to
leverage internal processes.
For example, DaimlerChrysler's pilot supply chain management
tool does not simply distribute forecast information to Tier 1 suppliers,
replacing and enriching the information previously sent via EDI. It
simultaneously sends forecast information to suppliers throughout the supply
chain. This process change addresses the delays that occurred at each stage in
the supply chain and limited the quality and timeliness of information received
by lower-tier suppliers.
For instance, DaimlerChrysler had to work with the suppliers
piloting this tool to develop the suppliers' processes for using this forecast
information. The use of the forecast information is a challenge
because while the forecast could help the suppliers to order
materials earlier and schedule operations more efficiently, DaimlerChrysler may
only account for 5 percent of the suppliers' sales and other customers do not
provide similar forecasts. While process reengineering is not easy, it is vital
to creating step function improvement in the key metrics.
According to the above demonstration, it is obvious that
consortia and private exchanges create value. The range of opportunities
offered by the exchanges is wide and consistent, it can highly impact an
organization's bottom line. However, organizations must keep in mind that
exchanges require substantial resources in terms of planning, execution, and
continuous development.
During the past several years, B2B Web-based operations have
evolved from simple sources of supplier information to online marketplaces,
with many buyers and many sellers, all focused on the industry's offerings.
Exchanges were designed to match those buyers and sellers more efficiently and
to lower their overhead costs via paperless operations.
The proliferation in recent months of business-to-business
(B2B) exchanges for the aerospace industry is symptomatic of the growing
interest in Web-based marketplaces that link buyers and sellers directly,. On
the other hand, B2B exchanges are increasingly becoming tools to achieve
specific corporate goals--such as increasing sales, improving customer service
and cutting back on excess inventory. E- commerce is supposed to eliminate
non-value-added activity. According to the chairman and chief executive officer
of the Boeing Company, electronic transactions translate into a 25 percent
surge in productivity.
5.1 Exostar, the BAE Systems, Boeing, Lockheed Martin
and Raytheon emarketplace
Boeing comprehended more than 20 disparate procurement
systems operating independently in over 50 global sites and over 8,000
worldwide trading partners. Furthermore, millions of transactions were
conducted annually through EDI and XML technologies, and more than 40 unique
supply chain and financial business processes. That is the reason why Boeing
required a comprehensive, secure and highly scalable integration solution. To
that purpose, Boeing conducted a detailed analysis and evaluation of whether
they should develop middleware as a core competency or outsource to a third
party with an established competency. They finally choose to launch Exostar.
BAE Systems, Boeing, Lockheed Martin and
Raytheon, which are among the world's leading aerospace and defense
manufacturers are known to be tough competitors. They collectively have more
than 37,000 suppliers and $71 billion in commercial and government sales.
However, facing the growing pressures of market globalization and cost
reductions, it became clear that the aerospace industry was in the need for a
mechanism to share costs and facilitate higher levels of collaboration to boost
efficiency and effectively compete. Consequently, the foursome later joined by
Rolls-Royce, launched Exostar, an electronic business-to-business marketplace
for trading everything from jet engines to wing assemblies to paper clips.
Owned and operated by the five founding partners as a separate
company, Herndon, Virginiabased Exostar provides a secure yet open environment
for trade and collaboration, yielding transactional efficiencies and supply
chain synergies.
Through Exostar, vendors can provide computer-aided drawings
or other documents to prime contractors. For the supplier, Exostar eliminates
the need to establish a separate conduit for each team member. For the prime
contractor, Exostar provides a space to collaborate with suppliers outside its
own firewall.
Operating as a managed service, Exostar's solution encrypts a
document so that it can be opened only by those who hold its encryption key,
usually the integrator and the collaborating suppliers. Conversely, only
Exostar itself has access to the logs of who opened what material, so the paper
trail cannot be compromised. Identities of participants are verified through an
independent managed public key infrastructure service from VeriSign Inc.,
Mountain View, Calif., according to Jeff Nigriny, Exostar's chief security
officer.
Exostar maintains detailed background information on each user
and a 1 2-month record of every file being accessed, what changes were made, by
who and allows no one person or company (even at Exostar) to have complete
access to all the data.
To create this highly secure environment in real time,
Exostar's Herndon, VA.-based staff turned to Needham, Mass.-based PTC for its
collaboration system--the underpinnings of the site. It hired @stake, a
security company to incorporate additional security. Exostar also licensed
security software from a number of vendors including Netegrity, which
authenticates who the participants are; Webex, which offers Web
conference systems based on secure socket layer; and eVincible,
which encrypts data as it travels between networks and while it is stored on a
server. It turned to Symantec to protect its network from viruses and it
enlisted the services of Maven, a company which continually fakes hacker
attacks into the system looking for weak points.
Rolls Royce, which won the contract to build the Trent 900
engine for Airbus's new 550-person A380 jet liner, recently put Exostar to the
test. It used Exostar's electronic collaboration service so that its engineers
could share CAD patterns and project management systems with other design
engineers at Fiat-Avio, Goodrich Corporation, Hamilton Sundstrand, Honeywell,
and Volvo.
When the project began, Rolls Royce appointed a manager who
logged onto the system to start a session. Then, Verisign verified the project
manager's identity and authority to work on the project. Verisign gave the
project manager a password and a digital certificate--a type of cyber passport
to verify online identity. The certificate resided on the manager's computer so
it was only possible to access the system from that computer. The manager then
invited others to join the project and he specified the level of access to
which each user was entitled.
Once that was completed the partners were ready to share
information. While the engineers--located from Derby, England to Chandler,
Arizona--worked on the same document using their personal digital certificates
for verification, the file itself was encrypted with a 128-bit key.
After the session ended, the file was then sent to Exostar's
data center, which provides high levels of physical and network security. Then,
when another project member wanted to access the file for revisions, it was
encrypted again before traveling over the Internet to his desktop, where it
remained encrypted until the engineer with the authorized key opens it.
Indeed, today Exostar has over 11,000 members who think it's
worth it. RRob Savidge, the chief engineer for the Rolls-Royce Trent 900,
estimates that by collaborating over the Web, Rolls Royce saved as much as 60%
on its travel budget, reduced project management errors by up to 50% and cut
the product development cycle time by up to 40%. And so far, no
break-ins.--Niall McKay
Exostar architecture is open so that the members can join
without extensive investments in internal technology and processes. In
addition, sensitive information is encrypted, according to industry standards
Electronic auctions is one option available to the exchange users.
Consequently, small businesses are enabled to register and make their products
available to everyone who is connected. One of the Exostar objectives is to
make suppliers participating as active community partner, to enhance
competition and to develop opportunities for small businesses. As it is best to
have as many companies as possible, Exostar does not impose any exclusivity
requirements on companies wishing to do business on the site. From the supplier
perspective, Exostar represents the opportunity to get into the aerospace
market. As a matter of fact, as soon as the supplier products meet the
government certification requirements, the supplier is eligible to participate
in Exostar. As small manufacturers which are producing unique and specialized
items do not have a lot of visibility, they should benefit from e-market
places.
Boeing also created the eBuy Program which
enables the aerospace supply chain to align itself with Exostar. First of all,
all the players (e. g Boeing employees, suppliers, partners) benefit from a
significant reduction of paper use through the use of the new Web-based
products. For instance, the Boeing Commercial Airplanes unit expects the saving
of 10,000 feet of paper per year after the full implementation of all the
e-business activities.
SourcePass is the Exostar online
auction system dedicated to procurement transactions. In 2002,
SourcePass helps Boeing business units to realize an average savings of 32
percent over traditional negotiation techniques.
The Enterprise Supplier Portal, which
belongs to the eBuy program is a secure business-tobusiness Web site. It allows
suppliers to get information quickly and efficiently. Consequently, it reduces
costs and increases productivity. 18,000 suppliers can access the portal.
Transaction Services allows the information to move faster and
more efficiently between Boeing and its suppliers. This data "pipeline" manages
the incoming and outgoing information from 22 business systems which support
supplier management and payment processes.
SupplyPass consists in a paperless
purchase order. It allows the suppliers to receive, acknowledge and
manage the incoming orders. Consequently, Boeing procurement groups are enable
to avoid the delivery of "hard copies" (paper copies) and therefore to reduce
the cost of delivering procurement transactions.
ForumPass is a Boeing Supplier
Web-based virtual team room. It allows to streamline communication and
therefore to reduce variability and cycle time. For instance, the Boeing 7E7
used ForumPass during the beginning design phase of an airplane
The Boeing Enterprise Supplier Tool is a single source of
enterprise supplier data. It includes information such as the diversity reports
(addresses, contact names...), reports (payment, diversity reports), corporate
agreements and data analytics.
It seems obvious that the Boeing eBuy program highly impacts
the aerospace procurement employees and their work processes. All the tools
described above allow Boeing and its suppliers to develop new business models.
These new business model goals are to simplify tasks, to increase productivity
and to standardize. As a matter of fact, this is resulting in the evolution of
the "old procurement process" which was considered as complex, fragmented,
cumbersome and costly. To that purpose, Boeing hopes to reduce significantly
its 18 procurement systems to only four or five.
Over the years, Boeing's four major businesses have built
different procurement systems which were using different software. Boeing's
business units connection with its various suppliers was a kind of messy
spaghettilike tangle of lines. Instead of one unilateral replacement, Boeing
decided to perform a measured connection to Exostar. This Exostar connection
plan use XLM-based standards.
The access to Exostar simply requires a browser, Internet
connection and a security password. This easy access presents several
advantages for both Boeing and its suppliers. From the Boeing perspective, it
provides links to legacy system and cut the number of procurement system. In
addition,
through the use of a supplier profile database, Boeing is
allowed to do the strategic evaluation of supplier data.
As Exostar uses XML rather than complicated electronic data
interchange (EDI) formats, more suppliers can access the exchange at lower
cost. Unlike XML, EDI are expensive as they require suppliers to put money into
the batch. XML only requires the use of a browser. Using Exostar and XML,
different units of Boeing can use the same interface to connect to suppliers.
Accounting, inventory, shipping and racking systems all benefit from the XML
use
5.2
MyAircraft.com
The aerospace industry has inventories worth about $50
billion, mostly in spare parts. But the annual demand for new spares and
repairs amounts to about $30 billion. Consequently, Inventory improvement is
one of the main motivation when joining an exchange.
One of the most viable competitors emerging today is
MyAircraft.com, launched by industry
powerhouses United Technologies Corp., Honeywell, and i2 Technologies. These
firms collectively have about $25 billion in annual revenue. Like Exostar,
MyAircraft.com is an independent
company created to provide an electronic exchange for airlines, manufacturers
and suppliers aerospace after-market parts and services. The BFGoodrich Company
recently announced it will became a partner.
MyAircraft.com site offers products
from parent companies United Technologies and Honeywell. But new capabilities
will be added for supply chain management and technical data handling. The site
will earn revenues from transaction fees and technical publication subscription
sales.
It is important to note that neither Exostar nor MyAircraft plan
to impose exclusivity requirements to companies wishing to do business on their
sites.
5.3 Exostar and MyAircraft potential risks
In order to gain the participation of other companies,
Exostar and MyAircraft promote the openness of their systems. They do not want
to be perceived as exclusive clubs. However, other industry players consider
the risk of anti-trust issues if some companies find out that access to certain
exchanges are restricted. To that regard, Exostar argues that the system was
secured through legal advice. MyAircraft considers that its main objective is
inventory management and the automation of supplier-buyer transactions.
Other industry players think that there is much more to
achieve growth in the industry than having an e-market place or other kind of
Web sites. For instance, Messier-Dowty (SNECMA Group) as a Web exchange
dedicated to selling parts and a larger site dedicated to electronic business
transaction. The Messier- Dowty company uses Internet as a customer-service
tool but does not view the Web exchange as an increasing sales tool. They still
believe in the face-to-face contact, meaning that if you do not meet the
customers in person, you loose market-share. From that perspective, E-business
is just a tool.
5.4 The GE Aircraft Engines position toward
Exostar
One of the industry's most prominent firms has already
experienced success with its own e- business site. General Aircraft Engines has
assigned 300 employees to the Web Center. The airlines or maintenance shops
which would like to gain access to the Web Center must be pre-approved by GEA.
The pre-approved companies can buy spare parts, research technical publications
and remotely diagnose the condition of specific equipment. It means that they
can receive information on the status of an engine while the engine is in
flight.
While the Customer Web Center performs the "selling" function,
GEA has a Supplier Web Center for its 1,200 suppliers. As the "buying" side of
GE's Web operation has automated many tasks, about 200 positions in the
purchasing department were thus eliminated.
Having 1,200 suppliers on the supply chain Web Center allows
GE to do forecasting, scheduling, part shipments, drawings, quality control
documents. GEA was used to spend a million-and-a-half dollars shipping
blueprints to customers. Now, they pull drawings off the web and print them out
themselves. When there is no value added in a task, you can automate that and
eliminate people associated with it.
GEA also plans to launch a site for military customers.
Military customers will have access to spare parts, product support and
component repair status. Even if most of the content material on GEAE's sites
is proprietary or sensitive, they do not have any top-secret information on the
Web. However, commercial and military customers have their data stored
separately and cannot access that data unless they are authorized.
GEA decided not to participate in Exostar. As a matter of
fact, the volume of the GE company as a whole is as big or bigger than the
volume of the Exostar founding members combined. In addition, while
concentration in aerospace may cause antitrust issues, there will be no
antitrust risk by combining the GE companies.
Furthermore, GEA does not want tot get tied up with five
companies in a big bureaucratic structure. As GEA belongs to a 120 billion
dollar company, it has got enough leverage, focus and expertise to drive its
own e-marketplace.
From the GEA perspective, participating in Exostar would mean
to source the same goods and being charged the same prices by vendors. Sharing
purchasing power with other companies should lead to a competitive advantage
lost. With regard to cost control benefits, GEA estimates that they do not need
it from Exostar as they already have their own cost control.
According to GEA top management, the aviation and aerospace
industries challenge is to better manage the interface between product
manufacturers and the airlines themselves so that the customers get more
benefits and gain productivity.
As every company is affected by what other exchanges are
doing, the development of standards throughout the B2B exchange universe will
be a top priority. There are all kinds of exchanges which all tackling it from
different perspectives. GEA wants to stay GE-branded, give its customers
state-of-the-art functionality and be fast to market, building de facto
standards.
GE's status as one of the world's three major engine
manufacturers means that, no matter what exchanges are out there, GE will be a
player. Obviously, exchanges which are becoming intermediaries, cannot survive
without GE. Consequently, there is no rush for GE to get in these exchange but
they won't allow these exchanges to take over their relationship with their
customers.
GEAE's top competitor, Pratt & Whitney, is affiliated
with
MyAircraft.com. Pratt & Whitney
is owned by United Technologies. The third major engine maker, Rolls-Royce,
announced it is launching an e- business portal called "aeromanager," which
will provide tailor-made fleet management solutions to the aviation industry.
The portal is a joint venture with San Diego-based Science Applications
International Corporation.
It is unlikely that all the exchanges currently in business
will survive in the long term. For instance, one of those exchanges, AviationX,
appears already to have folded. Phone calls to AviationX offices in Arlington,
Va., were not returned.
Some aerospace industry players believe that there is no room
in the industry for more than one exchange, but that there will be dropouts as
time goes on. Another exchange that was scheduled to begin operations in the
summer of 2000 is
Aerospan.com, an e-business site for
the aviation transportation industry. The company predicted it would help boost
airline profitability by 26 percent.
