While e-procurement has been around for roughly a decade in the airline industry and has become somewhat "second nature" to many participants, there are still a lot of opportunities for expansion and resulting efficiency improvements and cost savings, according to experts in the field.

E-procurement got its start in the airline industry in the mid-1990s and had gained a lot of traction by the end of the decade. "The wheels came off in 2002, though, because of 9/11, resulting in quite a bit of consolidation," reports Bob Schroeder, a solutions engineer with Servigistics. The Atlanta-based company offers a Strategic Service Management solution that includes software, services and domain expertise tailored toward optimizing investments for aerospace clients (OEMs, Tier 2 component suppliers, airlines and defense). Schroeder has 30 years experience in A&D and his current focus is on technology integration.

"Some of these providers were created by the OEMs and some were formed by the airlines. Even now, there are not many of them left because of the consolidation," he notes. Among the OEMs that developed their own portals are Rolls-Royce, which has Aeromanager; Boeing, with MyBoeingFleet, and Embraer, which has AEROChain.

Three predominant players in the industry as a whole are Exostar, Aeroxchange and Verticalnet. "Most activity that we are seeing these days in e-procurement is focused on optimization of inventory investments in the MRO area," Schroeder continues. "This is one area where we have been focusing, and we have spent a significant amount of time working with a number of airlines to help them reevaluate their MRO supply chains and corresponding investments."

The Washington-based Air Transport Assn. has been in the procurement space for almost 50 years developing standards for how carriers and suppliers exchange information and conduct business. ATA has published all of the documentation around how transactions are to be conducted, which began as ATA Spec200 and is now ATA Spec2000. If a user is compliant with Spec2000, then any system that is Spec2000-compliant can accept its transaction. In fact, according to the association, the major airlines handle 70%-90% of their technical purchase orders via Spec2000.

"As we talk with other industries, including rail and auto, we feel pretty good about where our industry is in terms of the level of standardization that it has achieved with e-procurement," says ATA spokesperson Victoria Day. "The world's airlines have done a really good job in this area."

Malvern, Pa.-based Verticalnet provides supply management solutions, focusing on visibility, insight and control of supply management initiatives. "Post-9/11, there has been a tremendous amount of pressure in the industry related to cost management and sustained cost reduction," notes VP-Solution Strategy Jim Wetekamp. "The ability to identify cost savings and improve productivity has become imperative to success in this market." He sees two facets to these challenges: Controllable ones and uncontrollable ones.

In dealing with the controllable components, Verticalnet's clients are responding on two ends of the spectrum. One is to get a firmer understanding of their baseline spend in key categories. This visibility assists them in identifying who their top vendors are, how fragmented the category is and where opportunities exist to drive savings through supplier rationalization, improved compliance and more fact-based supplier negotiation. The other is focusing on supplier performance management, such as supplier scorecarding, followed by a collaborative approach to improving service levels. "This process goes beyond just price reductions," explains Wetekamp. "It dives into elements of customer service, product quality, levels of vendor partnership and supply risk."

According to Wetekamp, these two processes "bookend" the initial forays into the execution of sourcing events. These steps are critical to driving toward improved commodity strategy development and the effective application of commodity sourcing groups. "Previously, these were some uncharted territories for many supply management programs," he adds.

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One satisfied Verticalnet customer is Delta Air Lines. "During the last few years, Delta has been focusing on achieving a competitive cost structure," states GM-Supply Chain Management Operations Mahmoud Hammoud. "We have achieved this, and we will continue to look at how to maintain this while ensuring continuity of supply and delivering good customer service." According to Hammoud, e-procurement tools have been and will continue to be important in achieving these goals.

Initially, Delta began working with a company called B2eMarkets. "We were one of their first customers and had a good relationship with them," recalls Charles Stanley, program manager-strategic sourcing. "Verticalnet bought B2eMarkets two years ago and retained most of their management staff, so we have continued to work with Verticalnet."

Delta has access to the entire suite of Verticalnet products and currently uses its Program Manager, Negotiation and Spend Analysis modules. "We also use Verticalnet for auctions and to monitor supplier performance, which is very important for us," adds Hammoud. As a result of its e-procurement initiatives, the carrier has been able to identify a number of savings opportunities, and looking to the future it sees additional opportunities. "Currently, we handle our contracts manually," says Stanley. "We are looking at using Verticalnet's automation to handle this activity."

Additional options exist, according to Hammoud. "We have talked with several providers and consultants in the last few months, and the one thing that is coming out more and more is the trend toward supplier performance management," he states. This involves establishing strategic partnerships with suppliers and working together to reduce costs and add value to both partners.

Herndon, Va.-based Exostar provides sourcing, collaboration and procurement tools for buyers and suppliers, including e-procurement exchange services. Its offerings include SupplyPass, ProcurePass, SourcePass and ForumPass. Exostar was formed about seven years ago by BAE Systems, Boeing, Lockheed Martin, Raytheon and Rolls-Royce, all of which continue to own it. "The owners wanted to harness the power of the Internet to collaborate more effectively with their suppliers, customers and other partners," explains VP-Marketing and Corporate Development Peter Scott. "They realized it made more sense to work together and invest in the technology that they wanted than to do it separately. They also had a pretty substantial overlap in their supply bases."

Business is booming. Exostar facilitated about 10 million transactions in 2006 worth about $35 billion, a 52% increase over 2005. It is forecasting about 13 million transactions in 2007. "We have also been involved in reverse auctions for over five years, totaling about $9 billion worth of goods and services during that time," says Scott. "Since we first started, a lot of the hype surrounding reverse auctions has died down. In addition, supplier concerns have also died down." He says customers and suppliers now both realize that reverse auctions are simply one piece of the sourcing process. Suppliers recognize that they offer more transparency and market intelligence than the traditional paper and mail process. The technology also reduces the RFQ time cycle.

In the future, in order to provide more value for suppliers Exostar is considering enabling them to upload their certification and representation documents onto its exchange and then allowing those forms to be accessed electronically. It also is planning to penetrate the commercial aviation industry in 2008, targeting performance-based logistics as well as MRO activity.

For the first time in its history, Boeing has arranged for the majority of one of its airplanes (the 787) to be fabricated by global partners and delivered as major subassemblies that are assembled and tested in its facility in Everett, Wash. With the manufacturer now operating as the final assembler, coordinating the many structural and systems partner locations spread around the globe has become paramount. It has had to synchronize demand/supply and logistics information across multiple partner tiers so that key components and subassemblies arrive in Everett at the right time for final assembly over a three-day period.

To assist in this process, Boeing began using the Exostar Supply Chain Management Solution, which manages the complete order lifecycle and returns process across the multiple partner tiers while also tracking planning schedules and consumption and managing replenishment for the inventory program with Tier 2 partners. "We began working with Exostar on the 787 project in December 2005," reports Tim Opitz, director-production operations and support services-787 systems integration, processes and tools. "The technology and concept were mutually agreed to by Boeing and partners on the 787 program because we needed a common e-business/e-procurement tool to ensure the support of the 787 Large Scale Systems Integration business model."

Exostar allows the manufacturer and its partners to collaborate in terms of planning schedules, issuing purchase orders, tracking purchase order changes, exchanging shipping information (including advance ship notices), managing returns, tracking shipments and managing inventory consumption. The system also monitors events and process exceptions that occur and evaluates the impacts of these events against the master schedule. "Boeing, along with its 787 partners, have conducted multiple supply chain transactions using this solution," adds Opitz. Overall, since its implementation on the 787 project Exostar has been ensuring continuity of supply, improved cash flow, early identification of imbalances, improved ontime delivery, elimination of the time associated with manual activities and assistance with process improvement.

Irving, Tex.-based Aeroxchange provides services in the areas of strategic sourcing, commercial procurement, technical procurement, repair management, AOG services and consignment management. It offers a wide range of e-procurement services from electronic negotiation tools through e-procurement order processing engines. It also offers reverse auctions. "The workflow is tailored around the unique nuances of the airline industry, such as order processing for technical aircraft parts and the unique workflow around the maintenance of repairable assets, as well as a vanilla application for purchasing common goods such as office supplies," says President and CEO Albert Koszarek.

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"These days, we see the full spectrum of e-procurement tools gaining popularity, particularly in the order management, invoicing and AOG recovery services," he continues. "One reason is that a lot of pain associated with 9/11 and the industry being on financially shaky ground has passed. The airlines are getting healthier and are more able to make the necessary investments in business processes and supply chain management tools in order to manage a more outsourced supply chain and be able to manage that supply chain in real time."

In addition, according to Koszarek, as carriers recognize the manual intensity and effort associated with managing daily orders, which diverts attention and resources away from strategic sourcing, they realize that e-procurement can solve a lot of these problems. The technology also provides good negotiation platforms based on previous negotiation events. "As we continue to expand, we are moving into the electronic consignment space in the near term," he says. "The next step is to broaden the application suite to support ground support equipment and other airport-related services."

Aeroxchange is considering the idea of providing services for the e-procurement of fuel as well. In 2000, an e-commerce business owned by a broad spectrum of airlines and fuel/oil companies, called JET-A.com, made an initial attempt to develop applications to support this side of the business. "However, there wasn't enough maturity in the endeavor at the time," Koszarek says. As a result, JET-A.com shut down in 2002.

Another area of consideration for Aeroxchange is MRO. "As airlines focus more attention on strategic supply chains, they are moving toward outsourcing more of their maintenance activities," he notes. "They want to rely on good supply chain tools to gain visibility of inventory, as well as being able to seamlessly see the full range of suppliers, then effectively communicate, negotiate and manage the order and delivery stream."

Suppliers in the industry are actively involved in e-procurement. Dallas-based Aircraft Inventory Management & Services Ltd., which carries inventories from Pan Am, Delta, TWA, Continental, Eastern Airlines, Boeing, Airbus and others, was one of the early adopters. "We have been offering e-procurement services to customers since 1998," says President Brent Webb, who is a board member of the Washington-based Aviation Suppliers Assn.

While there are many instances of customers demanding that suppliers begin offering e-procurement technology, in this case the reverse was true. AIM&S began offering the technology simply because Webb saw it as being integral to the future of the business and the industry as a whole. "At first, it took awhile for customers to get comfortable with the technology," he admits. "In fact, there are still only a small percentage of customers using it." However, those who do really appreciate the real-time information. "For example, they can go to the screen and get all of the information on their orders at a moment's notice instead of having to call our customer service people to get updates, or wait for us to return calls."

Mike Dennis, senior executive and partner for Accenture's Atlanta office, has a lengthy background in aerospace and airline supply chains. Prior to becoming a consultant 18 years ago, he worked directly in the industry. He offers some additional perspective on where e-procurement has been and where it is headed.

"When it comes to e-procurement, most industries first focused on the indirect spend side, then took awhile before they got involved in direct spend," he recalls. "What is unique about the aerospace and airline industry is that it started to target the direct side fairly early." One reason, he believes, is that the industry understood, especially on the production side, that it's not just about getting the best price but the importance of being able to add logistics flow and documentation to the supply chain process.

Still, it has taken awhile for e-procurement to evolve in the industry, Dennis says. "However, I think we will see even more e-procurement in the future." He believes one area that will grow is the MRO sidehow to outsource MRO through e-procurement including how to price it, bid it and manage it. "To date, this has been the slowest area, but I think it will see significant growth in the coming months and years," he concludes.