PAUL ALEXANDER'S PERSPECTIVE on procurement is a bit broader than others. "What [it] can sort of do is align the organization and pull together a much broader understanding of success," says British Airways' head of procurement.
To understand how BA conceives of such a sweeping role for its purchasing people calls for some history. Back in the late 1980s, past Procurement chief Clive Mason laid the foundation for the airline's present effort by elevating the profile of the department. He accomplished this through hiring new talent and enhancing professionalism during a time when costs were considered somewhat secondary. "I think that carriers were far more sensitive [then] to revenue opportunities than they were to cost pressures," says Alexander.
You know the rest of the story; it's been written in large letters across the commercial skyscape over the past half-dozen years. Cost containment catapulted to the head of the queue. From 2000 to 2001, BA was growing so fast that "the rate was ultimately unsustainable," says Alexander, recalling the carrier's acquisition of a new fleet of aircraft. "We incurred a great deal of debt." Then came a clear blue morning in early September. Debt, and suddenly decimated demand, thrust Procurement to "the very center of where the company needed to head" he says.
SUPPLY BASE AND COSTS
Managing the supply base and costs became paramount. Just as it did, BA cut its Procurement ranks by fully half. What had been a department of just under 400 contracted to about 190.
It's at times like this that managers either get innovative or get out. "Not everything we did worked," concedes Alexander. But the things that did apparently worked well. One of those initiatives was to exact control over British Airways' spend, in all its guises. "We developed a very consistent, very rigorous approach to the way we spent the company's money," he says.
First, BA management established a floor. Any expenditure above £100,000 ($200,203) had to run the gauntlet of a full-fledged strategic sourcing process. Before, there had been no line--Procurement thresholds had been far more discretionary. "It was a much looser engagement," he says. "Procurement was sometimes there; sometimes less there." The result: Lesions in the body politic through which money bled.
Now, Procurement is there all the time, at least in some form. You want to buy something significant at BA you do it through Procurement. Period.
The conduit can take several forms. Perhaps a department brings in a procurement person. Maybe a manager buys online. Whatever the avenue, employees now adhere to the company's Procurement Pay Process.
That process begins with "understanding the business need," says Alexander--whether it's in any way discretionary, whether it supports the brand and the network scheduling. In short, it now matters a great deal that purchasing is in sync with the core mission of the company. Then the issue becomes "whether it's something that actually needs to be bought or whether it's something you might choose to lease." The notion is straightforward: "We start from a perspective of [determining] which supplies we should engage," he says.
Then out goes the request for proposal, which leads to what BA's Procurement chief terms "a quite robust approach to negotiation." Those negotiations are well planned and carefully signed. Management doesn't like surprises. After selection, Alexander's team moves into implementing the contract.
The result of all this effort? He figures the new process helped BA save some £300 million ($600 million) cumulatively between 2002 and 2005 and another £70 million from 2005 to date. Overall, the department oversees approximately £4.2 billion in expenditures per year.
That's the pointy end of the spear, the part that gets the most attention. But there's another aspect to Alexander's procurement strategy, one he contends is equally important: Infusing mutual value into supply chain relationships.
It's a matter not just of manners but of supply and demand. "It concerns me greatly," he says, "that we appear to be moving from a world of plenty to a world of scarcity." A world that's manifested markedly, he maintains, in consolidation of the supply markets. Not only are there just two airframe manufacturers, "there's something deeper going on." The growth of commercial aviation in China, India and the Middle East is putting pressure on the supply chain as never before. Scarcity extends "across almost every supply market I can think of."
Fewer vendors; more demand. Something has to give unless an airline positions itself as a "customer of choice." That's precisely what BA is endeavoring to do. Alexander says, "We aspire to enter a relationship with our suppliers where they value us, where they really want to work with us." The idea is to "do our very best to make sure that [vendors] know we care, know we value what they do for us and that they actually have a place in fulfilling our customer proposition."
To communicate that, BA bestows awards, dispatches congratulatory e-mails or simply picks up the telephone and says "thanks." He is out to dispel the conventional wisdom extant among suppliers that procurement departments are organizations "that can say 'no' but cannot say 'yes.'" Traditional perception has it that procurement people "inhibit access to real decision-makers."
The inherent problem with purchasing is that if companies aren't consummately careful, suppliers see it as a mere procurer of product, as being obsessed with price--"the price of everything and the value of nothing."
Of course it takes more than thank-yous and awards to change the dynamic. Alexander believes you have to demonstrate that your company is mindful of the pressures on suppliers and emphasize that suppliers and airlines are "members of the same value system."
Case in point: Contour, which recently changed its name to PAG, manufactured the carrier's first-generation fully-flat Club World business class seat. BA is using a similar seat in reconfiguring a bunch of 757s that will fly under the OpenSkies brand on routes from Brussels and Paris Charles De Gaulle to New York.
The point is this: "They've not seen a large-volume order from BA for a number of years," says Alexander. "But we know they have good people and there's the prospect for future potential business." Contour worked "very constructively" to fit lie-flats into the confines of the narrowbody seven-fives, a cabin cross-section that's not a natural for this kind of seat/bed. "All of that is very much appreciated and taken into account with the way we're engaged" with the company.
Just now, BA is engaging in another big mission. London hosts the 2012 Olympic Summer Games and BA is an official sponsor. In landing that sponsorship, "we looked well beyond the price of that relationship and into its potential," he says. To that end, the airline is putting some of its people into the Olympic authority itself to help staff the organization, "enhance the customer experience and leverage off each others' brands."
It is through Procurement that BA interfaces with those as diverse as seat manufacturers and Olympic organizers. But nowhere is there a more diverse bunch than in London, the location of the carrier's hub where it just opened its new Terminal 5.
"[Heathrow is] probably the most complex supplier and management challenge we have," says Alexander. Catering, security, infrastructure, you name it, touchpoints are legion. That puts Procurement in prime position too. "Marshal the BA need, prioritize and give BAA [the airports authority] a clear point of contact. In the end, it knows it's having one managed conversation with British Airways rather than many dozens, hundreds or thousands," he points out.
Procurement's role under Alexander's execution is to funnel and focus, not just to drive low prices. "Fifteen years ago I'd have said that it was about applying corporate leverage, putting together volume and saying, 'Let's do a deal,'" he says. While admitting "that mantra still exists," today's efforts are just as much about presenting a "coherent, understandable" position to all the disparate parties who find themselves players in the supply chain.
Airlines don't automatically align themselves internally. "They tend to be quite fractionalized in the way they're organized," he asserts. Flight operations, engineering, catering and the like. All too often there are overlaps, even seemingly contradictory interests. The way BA's Purchasing chief sees things, "Procurement has a real role" in reconciling those interests. In the end, he says, it's a matter of proper alignment, not pure price.